Renting a home or condo has become a status symbol for some wealthy Americans.
Karen Rodriguez, an Atlanta, Ga., real estate agent, says people frequently contact her who are interested in condos renting for $10,000 to $15,000 a month in properties such as the Ritz-Carlton Residences, which have floors of condos above upscale hotel rooms.
“I do see a lot of high-net-worth renters,” says Rodriguez, with Berkshire Hathaway HomeServices Georgia Properties. “They have the disposable income to pay top dollar.”
Renter households increased by 9 million during 2005-2015, reaching nearly 43 million in 2015, according to the State of the Nation’s Housing report, an annual study by Harvard University’s Joint Center for Housing Studies that analyzes U.S. Census Bureau data. Of those, 1.6 million renter households earn $100,000 or more, representing 11% of all renters.
“Indeed, renter households earning $100,000 or more have been the fastest-growing segment over the past three years,” the report stated.
Here are four reasons why high earners are choosing to rent.
They’re frustrated with market trends.
Rob Austin, a biotech account manager in the Los Angeles area with a household income of over $350,000, rents a 1,700-square-foot townhome with his wife and two children.
In the last 10 years, 1.2 million households that earn $150,000 became renters, up from 551,000 in 2005. Using data from the U.S. Census Bureau’s 2015 American Community Survey, RentCafe.com reported in late 2016 that “wealthy households” that earn more than $150,000 annually increased by 217%, compared to an 82% rise in homeowners in the same income bracket.
The $150,000-and-up dollar amount served as the benchmark for “wealthy” renters because that’s the top of the bracket used in the American Community Survey to identify renters and homeowners.
Even when they had their second child in 2016, Austin says they were more steadfast to keep renting the two-bedroom, two-and-a-half bath townhome instead of buying. Prices are increasing so much that they’re “priced beyond perfection,” he says.
“It’s gotten worse,” he says. “Everything is mispriced at this point.”z
They want the next best thing.
Some buyers’ mindset is, “I don’t love it, so I’m just going to go rent a house,” says Atlanta, Ga., real estate agent Ben Hirsh.
Some may be bored with what’s on the market and are holding out for a home or condo with even more extravagant features or amenities. “They’re not happy with what’s out there,” says Rodriguez, also founder of Group Kora Real Estate Group, which sells new and luxury condos.
If they’re in a location or price range that’s hot, they could get more for their home if they sell now. Some wealthy homeowners take advantage of the resale market by going ahead and selling a home or condo and biding their time while renting. For example, if they’re sold on news about ultraluxe condos that have been announced, but are not under construction, they don’t mind renting in the interim.
“People think there’s more coming,” Rodriguez says.
Some clients have so much wealth that they’re willing to pay for the entire year up front for an unfurnished condo, she adds. Investors also have noticed the market trends and are buying condos for $1 million to $2 million with the intention to rent them out.
They don’t want a long-term commitment.
Some wealthy homeowners are ready to sell their million-dollar estates for a lock-it-and-leave-it lifestyle, but aren’t sold on townhome or condo living.
Instead, they’re willing to spend what can amount to the down payment on a starter home for monthly rent to experience the luxury condo lifestyle with privacy and ritzy amenities, like 24/7 room service and spa access.
“They want to test out a high-rise,” Rodriguez says. “They are people who definitely can afford to buy.”
A 2016 report by the National Association of Realtors identified the top 10 markets in the U.S. with the highest share of renters qualified to buy. The study analyzed household income, areas with job growth above the national average, and qualifying income levels (a 3% down payment in each metro area’s median home price in 2015) in about 100 of the largest U.S. metro areas. The markets that are above the national level (28%) were:
- Toledo, Ohio (46%)
- Little Rock, Ark. (46%)
- Dayton, Ohio (44%)
- Lakeland, Fla. (41%)
- St. Louis, Mo. (41%)
- Columbia, S.C. (41%)
- Atlanta, Ga. (40%)
- Columbus, Ohio (38%)
- Tampa, Fla. (38%)
- Ogden, Utah (38%)
The short-term mentality also may be the nature of the industry that brings people to a city. Some prospective renters whom Rodriguez meets are planning to live in Georgia for a couple of years because of work, such as jobs in the growing entertainment sector. Films such as the “Avengers” and TV shows such as “The Walking Dead” shoot in metro Atlanta.
They don’t want to live out of a suitcase in a hotel and have the income to afford high-priced rentals, joining political figures and international executives who also are among those making the same choice, Rodriguez says.
They want cash in the bank.
Townhomes sell for about $800,000 in Austin’s neighborhood in California. To make a 20% down payment, he’d have to shell out $160,000 up front.
“Why would I want to tie up $160,000 in cash in an asset that most likely is not going to go up a lot more — and more than likely has topped and has nowhere to go but down in the next cycle?” Austin asks.
Austin says he’s not wavering from his decision, although he’s “taking heat” from friends since he has the income to purchase a home.
“We’re bucking the trend by saying, ‘No thanks, we don’t want to play (the real estate market),’” he says. “We’ll just wait.”