Why do the rich rent houses – don’t they buy?

Opportunity for investors typically follows changing demand and if recent developments in the real estate sector suggest it, significant opportunities may already be opening up in a particular investment segment.

This development has to do with the increasing number of high-income rental apartments.

According to a recent MarketWatch article quoting a 2018 study by Harvard University’s Joint Center for Housing Studies, the percentage of renters with incomes above $ 100,000 rose 5% in 2017, “which is the cumulative increase from 2012 to 2017 of about 2.6 million “. The report revealed.

In addition, the tenant quota in this income bracket reached an all-time high (19%) in 2017, with higher-income households “accounting for the vast majority of tenant growth over the past five years”.

Not only are more high earners renting, but this class of tenants outperforms all other income brackets.

We assume tenants are doing this because they can’t afford to buy a home. They can’t afford the down payment, don’t earn enough income, don’t qualify for a loan, or are out of the market for a home. Whatever the reason, we assume that most people rent because they lack the financial means to buy.

The rich don’t seem to fit the profile of someone with no financial means to buy, so why are they renting?

Rising prices

One reason for this is that they are actually valued from some markets. In a survey by RENTCafe.com, cities like New York, San Francisco, and Los Angeles had the highest numbers of high-income tenants. As home ownership becomes increasingly unaffordable for the average American, even the rich don’t seem to be spared.

In the same MarketWatch article, Trulia’s chief economist Issi Romem was quoted as saying, “The barrier to entry [into the housing market] is higher than it used to be, “added,” House prices have risen and lending standards remain stricter than they were before the recession. “

Demographic change

Affordability isn’t the only reason high earners hire. Many high earners are millennials, and millennials, who make up approximately 22% of the US population, don’t behave like their parents. Most millennials don’t have the same perspective as their parents when it comes to working in a job, getting married, and raising children in a household for life.

Studies show that millennials’ home ownership rates are lower than in previous generations. Student loans and affordability have something to do with low ownership rates among millennials.

Still, Millennials are also more mobile than any other generation, jumping from job to job and from house to house more than any other generation. Thanks to advances in technology, millennials can work from anywhere and owning a home goes against their wanderlust.

Build a solid financial foundation

Are you tied to a nine-to-five week? Would you like to “withdraw” from wage labor within ten years? Are you in your 20s or 30s and want to be financially free? The kind of freedom that ensures you spend the best part of your day and week and the best years of your life doing what you want?

Assets views

Another interesting reason for the rich rent is that, unlike everyone else, they don’t consider an apartment an asset. This view was popularized by Robert Kiyosaki in the book Rich father, poor father. By the time you sell it one day and get its appreciation off, your home is a money pit that needs constant maintenance, updating, and repair.

The ultra-rich prefer to invest their money in something other than their own home, because the rich invest differently than everyone else. The affluent, like members of the Tiger 21 social investment club (at least $ 50 million in investable assets), consistently commit more than 50% of their capital to cash flow assets such as real assets and private equity, which are also invested over the course of the Time grow. An apartment is not a cash flow asset, so why buy one?

What does that mean?

Whatever the reason for the rich renting instead of buying, the fact is that it is an emerging trend that is clearly picking up momentum. As we have increasingly become a tenant nation, the main impetus for this movement was previously in the middle to affordable housing. But now that even high earners are turning to renting, there are investment opportunities in every multi-family segment, from affordable to luxury.

They say that investor opportunity follows demand. It looks like demand for rental property by the rich is opening a whole new door for multi-family investors that have never been seen before.

These new opportunities, driven by new trends, offer investors more opportunities than ever to diversify their portfolios with liquid, appreciating real assets that seem to become increasingly recession-resistant as demand – at all price levels – continuously outstrips supply.

More about asset accumulation from Advance Guide

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