The popularity of apartment living continues to increase, and not just as a temporary option.
According to Freddie Mac’s 2019 housing survey, nearly 40 percent of renters report that they will likely never own a home — up from 23 percent two years ago — and 80 percent say renting is a better fit for their current lifestyle.
A spectrum of age groups from Gen Zers just entering the workforce to baby boomers edging closer to retirement — even high-income earners who can afford to own a house — are choosing to rent.
Here are the top five reasons:
For years, many Americans considered homeownership an essential part of the American Dream. But growing student loan debt, an increasingly transient workforce and the elimination of the government’s first-time home buyer tax credit in 2010 have prompted a change in the overall perception of renting.
The Federal Reserve Bank of New York reported student loan debt reached an all-time high of $1.48 trillion as of June 2019, and the amount is only expected to increase in 2020. And, according to the 2019 Millennial Manager Workplace Survey, 40 percent of millennials have had four or more jobs since entering the workforce, and 75 percent say regularly changing jobs helps to advance their careers.
As a result of these factors, among others, renting is now more attractive to a broad range of age groups because of its affordability. It’s also creating a new angle for the American Dream: freedom of choice when it comes to where and how people live.
Convenience and efficiency in an increasingly fast-paced society
Renters today want the convenience of working and playing in the same area — and apartment communities are delivering with strategic picks for amenities and locations. Community clubhouses have fitness centers and game rooms, community rooms for parties, dedicated conference rooms and quiet work stations. As a result, residents can fulfill many of their needs without having to leave their community, saving individuals time and money for travel and championing a more sustainable lifestyle.
Renters are also choosing communities in proximity to their jobs and after-hours pursuits. A dedicated theatergoer may rent a studio in the city’s arts district while an accountant might prefer to live closer to work in the financial district.
Remember when you had to sign a standard 12-month lease to rent an apartment? Not anymore. A growing number of residents want shorter, more flexible lease options. Some have transient jobs and will be in a location for only a few months, while others are renting temporarily while they search for a long-term home. Regardless of the reason, property owners have responded with one-month, three-month and even custom leases based on residents’ budgets and circumstances.
Young professionals who are new to an area and baby boomers who are downsizing are particularly interested in this level of flexibility. Many want a minimalist, simple lifestyle with the ability to move or travel with little notice.
One- to two-year options are still available, but shorter-term leases are in higher demand.
Sure, some apartment communities still have an actual human who can book a golf tee time, accept a package or recommend an Italian restaurant for residents. But many are turning to digital concierge services to help residents with questions and tasks 24 hours a day.
These services, accessible by phone, text, email and mobile app, make it easier for residents to pay their rent, request maintenance and even request on-demand services like laundry, dog walking or house cleaning.
High school and college graduates fresh out of school haven’t had time to build their credit scores. Historically, this has been an argument against renting, but now an increasing number of apartment communities are helping residents build their credit by notifying credit agencies when rent is paid on time. Whether for the Gen Zer looking to buy their first car or a young family transitioning to their first home, this is a benefit for renters of all ages.
The bottom line: Demand for rentals continues to grow, as are the reasons people choose to rent. Whether you’re searching for convenience, flexibility or simplicity, there’s a good chance you’ll find a rental that meets your needs.
Robert Pinnegar is president and CEO of the National Apartment Association based in Arlington, Va.
With growing concern over housing affordability plaguing would be first home buyers, the issue of whether to rent or buy is more hotly debated now than it has ever been.
Sure there are some incentives for first home buyers including the First Home Loan Deposit Scheme, but as property prices continue to rise, many young Gen Y’s are concerned that they may have missed their opportunity to get onto the property ladder altogether.
At the same time some commentators insist that Australian housing markets are just too expensive so it makes more financial sense to rent.
So what is the best way to go?
The pros of renting
The truth is there are pros and cons for both options and ultimately, it’s up to you to work out whether renting or buying a home suits your personal and financial situation best.
Flexibility
The most obvious advantage to renting is flexibility. As a tenant you can freely relocate from home to home and area to area once your lease expires.
But because of the costs associated with buying and selling property, as a home owner you have less flexibility when it comes to moving house.
Note: It costs about 4% of the sale price of your home to sell (agents fees, advertising, etc) and about 6% of the purchase cost to buy (stamp duty, government fees, loan establishment fees, etc).
Cost
Renting can often be a cheaper alternative to buying.
Particularly if like many young professionals you prefer the lifestyle and career opportunities that inner and near city locations provide.
Many young people can't afford to buy in these locations, but can afford to rent there.
Even though rents are rising, more often than not your monthly rental payments will be less than what your mortgage repayments would be if you were to buy a comparable property.
Finally...
One of the big bonuses to renting is that you avoid costly maintenance, repair, rates and insurance bills that go hand in hand with home ownership.
As a tenant, it’s your landlord who is responsible for taking care of such ongoing expenses.
The cons of renting
On the other hand, renting has many disadvantages.
The most obvious being uncertainty as to whether you will be able to remain in a home you have grown fond of.
Tenants have very little say in how long they occupy a rental property.
Ultimately this is up to the landlord, who can ask you to move once your lease expires and can also terminate your lease early for a number of reasons.
Essentially the home is never really yours.
For instance when you rent, your property manager and landlord can come into your property at any time, as long as they provide sufficient notice and have good reason, such as regular inspections which can happen as frequently as every two or three months.
You also cannot make any changes to the property to improve your living space or even put pictures up on the wall without the landlord’s permission.
The other consideration as a tenant is the rising cost of renting.
Even though renting may currently be the cheaper option, rents will always continue to rise in line with the increasing values of properties.
Further, you never stop paying rent, whereas most people will pay off their mortgage within 25 to 30 years.
When you buy a home however, you have a certain sense of stability.
You choose how long you wish to live there (as long as you make your repayments!) and can make improvements to your living space and potentially add value while doing so; creating a wonderful thing called equity (the value of your home minus the amount you owe the banks = your equity).
Buying an investment property first
Over the years I’ve noticed a growing trend amongst young buyers who choose to get into the property market by continuing to live in rental accommodation and purchasing an investment property before buying a home.
This is commonly known as Rentvesting.
They do this for a number of reasons:
- Home ownership in the lifestyle suburbs they desire is too expensive, so they rent in beachside or inner suburbs where there’s a café culture, restaurants, nightlife, entertainment, recreational facilities and easy access to work and instead buy an investment property where they can afford to.
- They’re living at home rent free with their parents, enabling them to save and get a foot in the door of the real estate market.
- Their lifestyles are still transient, they’re still planning to travel or they’re not sure where they’ll settle, so it doesn’t make sense to plant their roots in property yet.
- They don’t see the burden of a large, non tax-deductible mortgage on their home as the best use of their money.
Isn’t rent money dead money?
Not necessarily.
I can see a good financial argument for continuing to rent and buying an investment property first.
Imagine you and I live in the same street, next to each other in similar homes each worth $500,000.
We both pay our home mortgages, rates, insurance, maintenance bills and so forth out of our after tax dollars.
Then one day I have a brilliant idea!
I suggest that we swap homes and rent off each other.
I propose you pay me $500 a week rent and I’ll pay you the same, so we’re cash flow neutral (the rental income I receive covers my expense of renting).
Note: Sure I still have to pay my rates, insurance, maintenance and mortgage, but now these expenses are tax deductible because I own an investment property.
Plus I’ll get the bonus of a further tax deduction on the depreciation of property and the fixtures and fittings inside.
Of course I’ll have to declare the rental I receive from you as income, even though I won’t pay tax on this, as my property outgoings are likely to be more than my income.
But the point I’m trying to make is that the sums are nowhere near as bad as most people imagine.
Now I’m not suggesting that buying your home first is ‘wrong’.
It’s still what most people will do, because it’s a lifestyle decision and not a financial decision.
However, I know many successful property investors with significant portfolios of properties around Australia who still rent their homes and enjoy the financial flexibility this affords them.
When you choose to rent-vest, you may save money because you’ll be paying less rent.
Depending on the suburb you want to live in, you’ll likely end up paying less in weekly rental payments than you’ll be forking out in combined mortgage, rates and insurance fees every week.
Or, like an investor I know called Ashley, you may be successful in upgrading your lifestyle.
Ashley lived on the Gold Coast and snagged a renovated, waterfront four-bedroom home for $850 per week in rent. When he checked its background, he discovered it had been recently purchased by an interstate landlord for $1.15m!
Ashley was not in the position to spend $1.15m on a house.
But he could comfortably afford to spend $850 in rent, especially since he was no longer spending a huge chunk of his income on a bulky owner-occupier mortgage.
His previous home was now rented out and he was leveraging the property’s income-producing status to enjoy a tax return worth several thousand dollars per year.
Read more: Rentvesting Strategy in Australia - the Pros & Cons
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