Why do renters rent
Farmington, MI · Member since 2017 · 16 posts · 7 votes
I am new to real estate investing and never really had much interactions with renters. I had a friend who rented out a house. The tenant who was nice although very very messy lol. I asked him why he didn't just buy a home since he is paying $800 in rent for a house worth $70k. He said basically he has bad credit. I was wondering what causes people to rent. I read a statistic that about 30% of people in usa rent, which seems very high. If you could share your experience with your tenants , what they did for a living, and any reason they are renting?
Thanks
Not everyone wants the responsibility of owning and being tied to a home. It's often cheaper to rent if everything is considered. I have renters who certainly could afford to buy. They like the fact that there are no unexpected big expenses such as a roof or central air or appliances. They don't have to worry about insurance or property taxes. If something breaks they simply pick up the phone and it's taken care of. It seems more and more people are quite comfortable renting very long term.
I currently rent with my significant other. Before discovering financial independence (FIRE) and REI, we planned on renting indefinitely. We like being able to call a landlord for emergencies or have maintenance take care of the place instead of worrying about it. His job also offers very good opportunities if you don't get tied down to one place (think, promotions for transferring).
We've always known that buying a house is probably better for our money in the long run, but it was more of a hassle than we were willing to deal with. Now that we've discovered FIRE and REI, our life plans have changed a bit. He now doesn't see himself at this job forever. Surprisingly, home-ownership has opened up many more opportunities for us than renting would have.
Many of my tenants haven't a clue about how to purchase their own home. The idea of saving for a down payment and having to apply for a mortgage is too overwhelming for them. They live month to month and paycheck to paycheck. Most would flame out long before a 30, 20 or even 15 year mortgage ended.
Some of these folks have asked about a "rent to own" situation. In most cases they also haven't a clue about this process either. They think if I agree to this all their current rent will automatically go towards their being able to buy the property. When I mention a down payment, an increasing monthly payment to cover both rent (even reduced rent) and purchasing plus the fact they'd now be responsible for repairs they just look shocked.
On the other hand since my ex-husband and I divorced 20 plus years ago he's never owned another property, preferring to rent. He never was one to want to fix issues around the house or even mow the lawn. I'm guessing he likes to rent because if anything needs fixing he just calls the landlord or property manager regarding this.
Gail
I didn't buy for the first 4 years because I didn't want the responsibility of caring for the house after I left the area (I knew I didn't want to stay in the area long-term), then when I saved up to move to the Boston area (without a job lined up), I spent a year figuring out the most ideal place for me to live (get a job, then determine if I liked my job enough to want to keep it, then ideal commute, neighborhood, where I mostly hung out, car-less life, house-hack-able).
Then I got extremely lucky and found a place in 2 months when I did start looking for somewhere, but most of my friends in the area spent over a year finding suitable places.
I have a coworker who has two yacht, one for $300K, the other $700K.... He also has a timeshare private jet.... But he never bought any real estate... A renter all his life.....Now he is turning 60, and I think, only think, he is regretting now.....
The question is posed in such a way that it makes it sound like buying is the most cost effective and smartest path. While many points are accurate, I would say that it is not always the best for people to buy. The average family moves every 7 years, although that has extended out a bit over the last couple years. The average family also takes a 30 year note which basically pays down the mortgage enough to cover the closing costs in 7 years. Once you start adding up replacing the water heater, furnace , roof, Windows, paint (6), flooring (2) kitchen and bathroom remodeling, ect ect over 30 years. The costs do not come out that much better. If a personal were to rent and pop those remodel expenses into the S&P500 over the same time, chances are the renter comes out ahead :)
Another way to frame the question would be: "Why would someone who can afford to buy a home choose to rent?" I know there's a lot of chat about millennials being a sharing/renting generation but I'll put that aside. There are huge numbers of people employed by somewhat transitory industries (think: oil and gas, people that want to move up in retail, etc.). They make good money, could afford to buy a home, but if they are going to move frequently it just doesn't make sense to buy. If you think rent on the coasts is expensive try buying a house for $750K and selling it 2 years later. Unless you've had solid appreciation you could easily be out $60K when it comes to paying realtor commissions, some share of closing costs, etc. In those 2 years almost nothing has gone towards your mortgage principal and you've had to come to the table with a chunk of money for property taxes each year. Mortgage interest write-offs aside, just those selling costs pay more than a few months of rent. Regardless of home price, the same issues are there just at a different scale.