When you’re talking with potential tenants, it’s good to keep in mind why it makes sense for many people to rent vs. buy. Understanding your customer’s pain points and motivations are important.
Unexpected expenses. One of the biggest deterrents to home ownership is having to be responsible for unforeseen expenses. As landlords, we know it’s expensive to replace broken water heaters, fix failed AC units, and repair roofs. If a potential tenant is uncertain about buying or renting, this is often the tipping point. Also, a monthly rental payment is cheaper than a mortgage payment on similar properties in many cases.
Flexibility. Especially in 2020, the ability to move whenever you want to is perhaps the greatest appeal to renters. The economy is in flux, not just in New York State, but everywhere. Even if the renter signs a long term lease, getting another tenant to assume that lease is much easier (in most cases) than selling a property.
No down payment. For a renter, move-in costs are likely a security deposit and the first month’s rent. If they were to buy a house or condo, they would have to qualify for the loan and come up with a significant down payment on the mortgage, which is often tens of thousands of dollars.
No housing market worries. While this has always been a concern, the COVID pandemic and everything else that’s happened in 2020 has heightened people’s fear over home values. Yes, housing prices have gone up in Westchester County in 2020, but remember the 2008 property price collapse? That was only twelve years ago. The door swings both ways on housing values, and renters know it. For context, consider this fact. In Las Vegas, housing values are down 50% in some areas of town year over year. Many people simply do not want to worry about whether or not they would have to ride out a drop in housing prices.
Cheaper insurance. Renter’s insurance is almost always less expensive than homeowner’s coverage. A renter’s personal property is still protected, of course, it just costs less per month to do so.
Home ownership is not a tax miracle. Most home-related costs, such as replacing old flooring, buying new blinds and drapes, or installing a new appliance, are not tax deductible (for the landlord, of course, this is probably not true because the home is a business asset, not a residence). If the house depreciates in value when it’s sold, you cannot write off the loss. Any gains you make on your residence’s sale are subject to taxation unless they are rolled into a new property (IRS rules apply).
As landlords, we invest in residential rental properties for sound reasons. But for many renters, there are good arguments to rent vs. buy. Here’s a link to a well-written article on this topic by wealthfront.com. One fact I found quite interesting in this piece – only about 37% of millennials between the ages of 25 and 34 own homes. That did not surprise me because it takes time to save for a down payment and move up in your career to make the income required to own property. What did startle me a bit was this, 63% of millennials who own homes report that they regret their home purchase. Why? The reason most often cited was “unexpected maintenance costs.” Is there a generational shift happening in the formerly almost universal American desire to own a home? Possibly. It’s definitely a trend worth watching over the coming years.
I doubt that you will have many conversations with potential tenants over the “should I buy or rent” equation. That said, understanding why people rent is valuable knowledge. Even if your tenants aren’t discussing these topics with you, be aware that they are thinking about these things when they are considering renting your property.
Do you have questions about property management? Maybe your current property management company is not giving you the top tier service you deserve. At Sterling Property Solutions, we have a team in place that can answer all your questions and address any challenges. Please give me a ring at 914-355-3277 or send me an email at Linda@Sterlingpsi.com. Together, let’s form a plan for you to take full advantage of the current conditions and put in place a robust, long term program for your success.