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Rich Americans Ditch Home Ownership For Renting

Published: Friday, 26 Nov 2010 by Joseph Pisani


Patrick Lee went from homeowner to home renter this year.

It may sound like a downgrade, but the New Yorker didn't make the switch because he couldn't keep up with payments or because he lost his job. Instead, Lee was nervous about the state of the housing market.



So in March he sold the Manhattan apartment he bought in 2008 for about the same price he paid and moved — along with his wife and child — a few steps away into a luxury, two-bedroom rental unit in a brand new building.

Lee wouldn't disclose what he's paying, but similar two-bedroom apartments in the building usually rent for $11,000 a month.

“I wanted to protect ourselves from prices going down,” says Lee, who is a managing director at a major bank. “I didn’t want to be an owner anymore.”

Lee has company. Demand for luxury rental units has increased as wealthier individuals who can afford to buy are deciding not to, according to brokers and real estate analysts in affluent areas of the country such as New York City, Chicago and San Francisco.

“More affluent Americans are opting to rent as oppose to buy,” says Jack McCabe, an independent real estate analyst and CEO of McCabe Research and Consulting in Deerfield Beach, Fla. “Within the last year, so many people have seen their family and friends get burned in real estate. They don’t see it as being a risk free investment as they used to.”

And they're paying top dollar to rent.

In Manhattan the demand for high-end rentals has never been hotter. In the third quarter of 2010 there were 200 new leases signed for rentals charging $10,000 a month and up, more than double the 89 leases signed the year before, according to Jonathan Miller, CEO and president of New York City-based real estate appraisal and consulting firm Miller Samuel.

What’s considered luxury in New York City? Currently on the market now at The Corner, Lee's new address, are a couple of three-bedroom apartments ranging from $14,800-$20,000 a month. At The Anthrop, another luxury building in Manhattan, a 3,331-square-foot four bedroom unit rents for $18,000.

Miller says that while high-end sales have picked up recently in Manhattan, the increased demand for luxury rentals shows that more would-be buyers are concerned and taking the “wait and see approach.”

The demand is also being seen in Marin County, right across the Golden Gate Bridge from San Francisco.

Last year, the phones at Foundation Rentals & Relocation office were ringing constantly with high-end homeowners wanting to rent property that they couldn’t sell, but no one was interested in renting them.

Now the firm is getting calls from executives, especially in the technology sector, looking to move into a rental.

“They’re entrepreneurs. They would rather put their cash in their business,” says Darcy Barrow, who founded the firm with her husband Christopher Barrow.

“And get a greater return,” adds Christopher.

This year, the firm handled a rental house with an 8-car garage for $12,500 a month. Another 6,500-square-foot, five-bedroom home is renting for $11,900. They also have a 2,658-square-foot town house on the market, boasting views of San Francisco for $7,000 a month.



“When I tell people I rent homes for $10,000, people ask, ‘Why would anybody rent at that price?,’” says Darcy. “They’re accustomed to a certain lifestyle. Just because they choose to rent, doesn’t mean they’re going to rent a two bedroom.”

In Chicago, Aaron Galvin, the broker and owner of rental agency Luxury Living Chicago, says that he has rented 30 percent more luxury apartments in 2010 than last year.

Luxury in Chicago means anything over $3,000 a month, and a building with amenities like granite kitchen counters, stainless steel appliances and washing machines and dryers in the unit, says Galvin.

A recent client sold a multi-million dollar home in the suburbs to move into a rental building, waiting to buy a property until she got a feel for the neighborhood.

“The cachet that came with owning seems to be gone now,” he says.

The same is happening in south Florida.

Chris Wells, a broker working in the Palm Beach-Boca Raton-Coconut Cove area, says he has seen “skepticism” from would-be buyers, who ultimately decide to rent a home before making a purchase, easily spending about $8,000 to $15,000 a month, because they are waiting to see if home prices continue to fall.

“In Florida, we’re really not out of the recession yet,” says McCabe, the analyst. “There is no urgency to buy.”

Lee says that he’s the first of his peers to make the switch to renting. But that doesn't mean they don't want to.

“I suspect a lot of people are underwater and can’t get out,” says Lee. “A lot of people are just stuck.”

He says he doesn’t regret selling his apartment and moving to a rental, especially since the building he lives in has all the amenities and handiwork of his previous place. And he can rest easier knowing that if he has to relocate for his job, he can leave without having the burden of trying to sell an apartment.

“With so much uncertainty,” says Lee, “It gives me a lot of peace of mind.”
 

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Sounds like a smart move to me.

Eliminate debt, create more wealth with the savings, get wealthy enough so you can pay cash and own outright.
;)

Still a problem there though, still would have to pay taxes, so technically the property you "OWN OUTRIGHT" is still technically uncle sam's place.

I did something similar to this article also.
 

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I read this article a couple days ago. I still hate renting, although it is the way to for many
 

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Interesting article. I can see this working out for some people, especially in areas where property values really took a dive. I still prefer to be the guy collecting the rent than paying it though:whistle:
 

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I see this happening a lot more and am expecting a surge in renters that hopefully will maintain its level for years to come. Home ownership isn't for everyone and shouldn't marketed as some miracle investment as it has been for the past decade or so.

So many people saw that their parents had owned their own home back in the 50s, 60s and 70s that they assumed they should do the same thing. What they didn't realize is how hard their parents worked for those homes and how much money they saved to get them. They didn't just go out and buy a house with 10-20% down or even 0% for that matter.

Hopefully the balance of renters vs owners will even out within the next few years.
 

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Thats a interesting article. I currently own a house in LA that I rent out and my wife and I moved out of the house about a year ago to run our business down in Corona Ca. We are currently living in a rental and have been contimplating buying another house in the Corona or RIverside area. We are looking at homes in the $500k price range and our mortage would be what our rent is now. I dont see the housing market going much lower than it is now and you could buy a house that sold for $700k to over a million dollars just a coupple years ago. I think buying now would be a great investment for the future but i'm having a hard time parting with the down payment money. Banks are looking for a minimum of 20% dowm and it's kinda nice to be sitting on that money. Then again interest rates are so low right now. I'm confused.....any advise?
 

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Interesting article. I can see this working out for some people, especially in areas where property values really took a dive. I still prefer to be the guy collecting the rent than paying it though:whistle:
+100

I'd rather be collecting those 10,000 a month payments from fools paying such high amounts, then the guy writing the check. 10,000 or more a month for something you'll never get any closer to owning. Good job.

But I guess, if I was making a million a year, AFTER tax, then 120k is do'able, but still crazy.
 

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Thats a interesting article. I currently own a house in LA that I rent out and my wife and I moved out of the house about a year ago to run our business down in Corona Ca. We are currently living in a rental and have been contimplating buying another house in the Corona or RIverside area. We are looking at homes in the $500k price range and our mortage would be what our rent is now. I dont see the housing market going much lower than it is now and you could buy a house that sold for $700k to over a million dollars just a coupple years ago. I think buying now would be a great investment for the future but i'm having a hard time parting with the down payment money. Banks are looking for a minimum of 20% dowm and it's kinda nice to be sitting on that money. Then again interest rates are so low right now. I'm confused.....any advise?
My family is buying me a house, and they wrote a check for 83% of the house value, but the goddamn bank wouldnt let them borrow the balance!. So now they had to go get a commercial loan, further delaying the closing.
 

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Problem for most people is that now lending has went back to normal levels of debt to income ratios and for investors it is tough as hell to get more than 4 or 5 loans on investment property. The fed is succeeding in legislating real estate investors out of business, which will hurt the economy in the long run....think about the past 8-10 years prior to 08'. Yup biggest economic boom in the country's history. Yeah some of it was false because of bad mortgages but the real estate market push the economy to unheard of places. Just my .02
 

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+100

I'd rather be collecting those 10,000 a month payments from fools paying such high amounts, then the guy writing the check. 10,000 or more a month for something you'll never get any closer to owning. Good job.

But I guess, if I was making a million a year, AFTER tax, then 120k is do'able, but still crazy.
I havea buddy in LA that owns a house that he rented to Queen Latifa for many years to the tune of 8500/month and that was only like $500 positve for him at that cost level...so the big numbers are not always the best numbers. It is not what you make it is what you keep.
 

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well, the article does state "wealthy" so the "average" person wanting a roof over their heads, has to take advantage of tax write offs where they can and owning a home/debt is how you do it. It's one reason I wanted to own a home so many years ago (20).

My home will eventually belong to my two daughters and they can have it and the taxes that go with it, but at least they will never need a down payment and never have a house payment until the day they decide to sell it (when one of them gets married or decides to move away from Sunnyvale.) This is when the "investment" will pay off; not in my lifetime but theirs.

For those that are wealthy, I suspect they have other investment vehicles that will shelter their income from taxes. I can't argue with the logic behind it. If you can come out ahead by renting over owning, then go for it.
 

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I own a rental home and it’s paid for and although the house values have dropped its still worth more than it was when it was originally purchased.

There is nothing like owning things outright and having 100% equity in properties. This particular rental home earns just enough revenue each year to pay the taxes and maintenance but I’m not looking for any income but rather just a safe shelter to park earned equity.

All the property we own is paid for and we have the deeds so all we every pay is property taxes which are easier than rent or a mortgage.

I personally don’t consider it a good business or personal finance practice to rent anything but that's just me.
 

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i have rented before. and now i am a home owner and currently building my dream house.
the joy of home ownership far surpass any of the downsides.
personally i have always thought that buying an apartment or a condo was just plain dumb (cant really defend this thinking so dont bother lol. but then again this article was about a location where houses with white picket fences are not gona pop up anytime soon.
 

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As someone that relocates every few years, I have never been happier renting. Every time I have owned, I lost money (particularly with realtors fees.).

These days, I hate having large amounts of money tied up in a hard to liquidate depreciating asset like a house.
 

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My family is buying me a house, and they wrote a check for 83% of the house value, but the goddamn bank wouldnt let them borrow the balance!. So now they had to go get a commercial loan, further delaying the closing.
I find this a bit absurd, there would have to be some crazy circumstances for a bank NOT to lend 17% of a homes selling price. If you don't mind me asking, what was the rate and amount?
 

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30k, and the rate was something like 4 or 5% for 15yrs fixed. But everything is fine now. It feels a bit weird owning my own place. I'm going to paint the walls neon fvckin green, just b'cuz I can!! :D . Joking.
 

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Stupid not to purchase now in my opinion, but who am I to judge.
Personal opinion is all.

Prices <50% of where they used to be, interest rates low. If you can buy you should buy.

Unless you wan't to buy my properties at 125% when you feel comfortable making the leap:)
 

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Stupid not to purchase now in my opinion, but who am I to judge.
Personal opinion is all.

Prices <50% of where they used to be, interest rates low. If you can buy you should buy.

Unless you wan't to buy my properties at 125% when you feel comfortable making the leap:)

that sort of logic in investing doesn't work too well. they are < 50% for a reason - they were 100% over-priced before.

- chuck
 

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that sort of logic in investing doesn't work too well. they are < 50% for a reason - they were 100% over-priced before.

- chuck
Agreed, it may be decade(s) before houses are back to their true value and worth.
 

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My family is buying me a house, and they wrote a check for 83% of the house value, but the goddamn bank wouldnt let them borrow the balance!. So now they had to go get a commercial loan, further delaying the closing.
arn't you the guy who took $1000 from your grandma because you don't want to find a job?
 
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