Even the ultra-wealthy don’t want to deal with homeownership costs. The number of millionaire renters has soared over the last five years, according to a recent report by Beauchamp Estates.
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Tight home inventory, high mortgage rates and rising costs have many affluent individuals ditching the downpayment for a security deposit. The number of households making over $150,000 that rent rose 87% from 2016 to 2021, according to the U.S. Census Bureau.
Homeownership has long been tied to the American Dream, symbolizing financial success and security. But that thinking could be changing, which begs the question: Could renting over buying also be a smart move for the middle class?
Here are some factors driving the rental boom — and a discussion concerning whether renting instead of buying makes financial sense for ordinary Americans.
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Behind the Boom in High-End Rentals
Why are rich people choosing to rent high-end units? Several macroeconomic trends may help explain the surge in luxury home rentals.
U.S. home sales have slowed over the past year, largely thanks to high mortgage rates and home prices. There are generally fewer homes on the market, as homeowners who bought homes during ultra-low rates during the pandemic are reluctant to sell.
Plus, construction of new builds slowed during the pandemic, contributing to the current lack of available homes. Construction is ramping up, per NBC, but meeting demand may take a while.
Many wealthy would-be buyers can afford to wait to buy their dream home — so they’re choosing to rent instead. Some may be waiting for lower rates and more homes on the market.
Others may believe the housing market is overvalued, according to Realtor.com, and want to avoid overpaying for a property that may lose value. This way, affluent renters can lock in a monthly rate while waiting for a better deal.
Why Choose Renting Over Buying?
Even if you can afford to buy a home, it doesn’t mean you always should. Renting relieves you of paying for the maintenance, insurance, property taxes, and other costs of owning a home.
If you’re a high-net-worth individual who splits their time across different properties, you probably don’t want to spend time dealing with the headaches that come with ownership. Sometimes, you just want to test drive a new pad without committing to buying the entire thing.
“Think of it like choosing a car for a road trip — sometimes you want the sleek convertible because it suits the journey better,” said Don Wede, president of Heartland Funding, a real estate company. “Renting allows them the freedom to switch homes as easily as trying out different cars. Plus, it’s like having a chauffeur for home repairs — the landlord takes care of the maintenance, so they can focus on enjoying their living experience.”
The average rent payment in the U.S. is $1,702, while the average mortgage payment is $2,317. Many wealthy individuals would rather save money by renting and put their dollars to work somewhere else.
Instead of tying up your money in an illiquid asset like a home, one could invest it in the stock market, which often performs better. Case in point: Home prices increased around 4.8% in 2023, per S&P Global, while the S&P 500 increased over 24% in the same period, according to Visual Capitalist.
“Buying a house is like putting all of your money into one big investment,” explained Wede. “But sometimes, it’s smarter to spread that money around. Renting lets you do that. It’s like choosing to invest in different stocks instead of putting everything into one. Plus, no headaches about fixing the leaky faucet — that’s someone else’s job when you rent.”
Could the Middle Class Benefit From Renting, Too?
As mortgage rates and home costs remain high, renting is becoming a more appealing option, even for middle-class families. Americans may benefit from putting their homebuying dreams on hold and renting instead.
For one, renting offers far greater flexibility when it comes to picking up and moving somewhere more affordable — or even just somewhere new. If you’re unsure where you want to put down permanent roots, renting allows you to make housing decisions to sync with life’s changes in a way buying simply can’t.
In major metropolitan areas like New York City and Los Angeles, renting is often the better financial choice.There’s no down payment required to rent an apartment (though you may need to make a security deposit), and you’re not responsible for any maintenance or repairs.
“Years of conditioning have resulted in the belief that you must own a home to get ahead, and that is just not true,” said Jay Zigmont, certified financial planner and founder of Childfree Wealth. “Anyone who is more nomadic or mobile should consider renting.”
Of course, the significant advantage of buying over renting is that you’re building equity in your home. This means you can sell your home and recoup some of your costs, or even make a profit if the home’s value increases.
But home ownership often comes with many additional costs you may not consider. You’ll also have to handle any repairs and maintenance yourself. Plus, middle-class Americans may have access to more desirable neighborhoods or newer buildings that they wouldn’t be able to afford if they were buying.
“The bonus with renting is that it sets the maximum you pay each month, and you can move at any time,” Zigmont added. “When you buy a house, your mortgage is the minimum you will pay each month as maintenance, insurance, taxes, and more regularly, it will increase or result in surprise costs.”
When You Should Consider Renting Over Buying
Renting makes the most financial sense for middle-class households that:
Don’t plan to stay long term: Buying and then reselling a home in a few years often doesn’t make financial sense because of the high transaction costs that come with buying. Renting offers more flexibility if you plan to move.
Don’t have enough saved for a down payment: Most homes require a 20% down payment to buy (or you’ll have to pay private mortgage insurance). Renting allows you to put more savings toward a future home purchase.
Have other priorities: Renting is a good choice if you’d rather put your money in the stock market or other savings goal over tying it up in a home.
Value simplicity: When renting, you only need to worry about your monthly rent payment and utility bill. There are no additional costs, like insurance or repairs, to deal with.
That doesn’t mean you need to give up on your homeownership dreams forever. If mortgage rates and home prices drop in the future, you may get a solid deal on a home loan that fits your budget in an area you’d like to live in for the long term.
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This article originally appeared on GOBankingRates.com: Millionaires Are Renting Homes Over Buying — Is This a Good Option for the Middle Class?
