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Why the rich are renting

By Judy Martel · Bankrate.com
Tuesday, July 3, 2012
Posted: 7 pm ET

Sales of luxury homes are rebounding, but a growing number of the ultra-rich are still renting, even if they can afford to buy. Real estate brokers say it's another indication that the housing market has changed in ways they're still trying to grasp.

Some of the reasons for renting among the rich are typical to the broader market: Potential buyers who purchased a home during the boom have been rendered gun-shy by the housing bust. And with mortgage rates predicted to remain near historic lows for the next year, there's no sense of urgency to buy immediately, giving buyers time to be choosy while home prices settle.

But there are additional reasons for renting that are specific to the luxury market. High-end rental properties have become more plentiful, as investors in luxury properties choose to rent them out while waiting for prices to rebound. In New York City, agents are reporting that the rich who own property elsewhere are opting for the low-maintenance lifestyle of renting in the city.

CNBC reports that mansions in tony areas like Miami, Beverly Hills and Manhattan are renting for more than $100,000 a month. Of course, for that price, you get square-footage, primo views of the city skyline or the yacht docks and plenty of amenities like tennis courts and even private discos.

Since the housing bust, have you become more committed to renting or do you still hope to buy a home?

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33 Comments
JMC
July 13, 2012 at 12:50 pm

I owned property in CA. For medical reasons my husband and I moved to WA. Better medical care. Prior to the downturn in the market our house appraised in the high $300's. In the midst of the downturn we couldn't sell. Market dropped so far that we turned the house over to the bank. They sold the house for $85K. Will never purchase again.

arthur vigil
July 13, 2012 at 9:43 am

I was forced to sell our two homes, when my job went over seas. (Two different companies). This was to prevent foreclosure. I was in the Electronics field. In my mid forties I was forced to retire for medical reasons later my wife was medically retired when she developed Cervical Dystonia. When we turn 55 we want to move into a community retirement village. I personally never want to own a home again. The pain of seeing my so wife upset haunts me to this day Until that deed is in your hand it belongs to the lender. You are just one accident or a pink slip from losing it.

robert thomas
July 13, 2012 at 9:27 am

It comes down to two possibilities. Number one is inflation, number two is deflation. That's it in a nutshell. If you gamble on inflation, buy now! The inflation will pay off your mortgage quickly. If you wager the other way, don't buy, you will lose your down payment and experience a continuous market drop in value until it all subsides if ever. These are the only possible avenues our economy can go. yesterday's hay ride has left and will not return. We are entering a new America, void of all the aspects of what we once were. The new demographics insist on it!!

tony
July 12, 2012 at 10:22 pm

I have owned my personal residences and owned rental real estate for over thirty years since 1979. I sold out everything just ahead of the downturn; chased the market down about 10% off broker's price opinions. Now we rent. I have no intention to buy again; especially in California and now with UNCERTAIN TAXATION on property and capital gains! I do intend to move out of the US and buy a home in another country that has policies more like what USED to make America a great country. Sorry to say, I think this ship is sinking and this rat is jumping ship.

PJS
July 10, 2012 at 3:43 pm

Bea, I would sue the association. They cannot just erroneously stop the sale of a property. I would contact a real estate attorney. However, I am also convinced, after renting for several years in a gated community with an association, that I will NEVER again buy a property that has an association. It was a major nightmare and I didn't even own. Never again.

SixMPGs
July 08, 2012 at 3:10 pm

Hey Beth I agree with you. Owning is the way to go in this current market. Fortunately for buyers (and unfortunate for the foreclosed upon), one can expect to purchase a great home for nearly 50% off original [or last] sales price. I bought my house for 56% below what the original owner paid for it. We made it out of a housing slump once and we will again. I stand to have nearly 100K in equity when that time comes. And if it takes 30yrs, all of my mortgage will be paid off and the home will have doubled in worth. No rent/mortgage payments at 60yrs old sound good to me.

Renting is not a bad thing, however. I plan to purchase my first rental property within 6 months. Its just that I rented for 9yrs before buying and I think of how 1/3 of my mortgage could be paid off instead of 1/3 of my landlord's mortgage being paid off. One thing renters have to understand is that "YOU DO" pay property taxes as a renter [BEA]. Renters never pay rent only. Your rent is comprised of a fraction of mortgage, taxes, insurance, and the infamous repair cost. In this market, a rental property owner can expect to have his/her tenants pay all expenses on the property and maybe even net a couple bucks. Just think of it as any other business, why would I own a rental property if I had to take money from my own pocket to pay any expenses? The business is supposed to break even in the beginning then produce large profits after the mortgage is paid in full.

Sellers have to expect a loss when they sell in today's market. Or you can ride it out and act as if you don't know that housing prices have depreciated nearly 50%. As long as you've been blessed with the same income and do not really have to sell, wait it out. This is a buyers market and buyers don't wanna pay anything near what you paid. Either sell and expect a 20-50% loss if you can afford it or wait it out. Now if you cannot afford the house due to insufficient income, thats a different story altogether. This is an unfortunate reality that many of us are facing today and the only advice I can offer is to work something out with the lender. Lenders are willing to take Some-Thing rather than No-Thing.

Bottom line is that our Golden Years should be Golden. With real problems threatening the Gold of our future, buying real estate at 30-50% off could help offset some of those problems and restore some of the Gold. You'll get a cheaper mortgage during your prime years that'll allow you to put a little more into savings. Then you get No rent/mortgage payments during the Golden years; meaning you have a nice savings account and the mortgage payment becomes income and no longer a housing expense. Win, Win!!! :)

Rojahs
July 08, 2012 at 11:09 am

@PR, I was thinking the same thing, I know in my neighborhood the association has the authority to reject or deny the selling of your property. I also know that if the owner wants to rent, the renter has to be approved my the association. I'm currently renting myself, I've owned a 5 bedroom house and it wasn't worth the hassle. Maybe one day I'll consider owning again but I don't see it in the near future.

PR
July 08, 2012 at 7:16 am

Hi Bea,

Can you please elaborate on "It has sold twice but the association it is in queered both deals". What kinds of restrictions did your association put on you and the buyer.

Thank you !

Beth
July 08, 2012 at 1:05 am

I bought my house in Dec. 2010. It was a foreclosure that the previous owner owned as rental property and it was in perfect condition and only 5 years old. I got an awesome mortgage rate (fixed) and made sure that if I got laid-off I could still afford it at 60% of my current income. It originally sold for $80,000 more than what I paid, which was still $20,000 below the assessed price. I couldn't be happier, and one day...it will be mine free and clear! If I ever rent it out, it could easily cover the mortgage. If I were to rent, I would forever owe somebody else. So, far...best decision since going to college, that I have made!

Bea
July 07, 2012 at 11:20 pm

I have had my house for sale for 5 years. It has sold twice but the association it is in queered both deals. I have vowed, if it EVER sells, to never own property again. I rent and have good landlords. I pay my rent ONLY. All repairs, taxes, etc. are the landlord's. I pay for heat and electricity and the usual cable and phone expenses. That is IT. I wish I had rented all of my life and never owned property. Each house sale was a white knuckle affair. Stupid. I'd never do all of that again!