High income renters (income $250k plus)
WSJ just published an article about high income ($150k+) renters, currently about 3 million across the US. This seems to be a trend in the HCOL area where I live. I rent a 4 bedroom SFH for less than a mortgage right now in the same neighborhood. We are just saving and saving until we are flush with cash. Anyone else in the same boat? I dont understand the stigma of renting, especially if it's a great neighborhood, great school district and great city.
Comments (21)
I make $250k+ and currently rent and don't plan to own any time soon. I live in a MCOL city but one that's on a high growth trajectory where the cost of a mortgage + utilities + taxes + insurance + maintenance ends up being significantly more than my rent downtown. I don't have kids and don't plan to have any soon or I would probably buy a house, otherwise I'd rather rent and use my money for other investments. I currently partner in real estate deals in a LCOL city where a rental property actually cash flows, so I put my money there to get exposure instead of buying a home. I also have no idea if I will be in this city for 2 more years or 2 more decades, so again locking myself into a house just doesn't make sense for me. I'm happy to keep my downtown location with amenities over paying more to be in a house 20 minutes outside of downtown where I have to get into the car to do anything just to have a couple extra bedrooms I don't really need and more to worry about.
The typical argument against renting is that you're "throwing your money away instead of building equity" which ignores the fact that half of your rent goes to pay taxes, insurance and maintenance which you'd be paying if you owned a house too. Not to mention the equity you're building by owning a house comes at the cost of a big down payment which could be invested elsewhere and also be making returns.
Buying a home can be a great investment during certain periods, especially if you get an FHA loan with 5% down payment. I just don't see now being that time in the cycle where you can count on material appreciation in the coming years.
Couple of things- And this is coming from a renter by the way, so I am not a homeowner looking down on renters. I am also a high earning renter like you.
1) As you mentioned, you dont have kids or plan to have kids which is fine but that is the exception and the norm. It really makes a difference when you have a family. Schools, backyard, parks, etc all comes into play. It is really hard to make sure you are able to rent a SFR/condo/towmnhome instead of an apartment in the "right" neighborhood.
2) I get that the most cited reason for homeownership is building equity like you noted but for me besides that, it would actually be convenience. I am a renter in a townhome with a two car garage and a driveway and I am a renting from a homeowner and not a large corporate manager, so I actually have it a lot better than most but I am still vulnerable to the inconveniences of renting. My rent can go up every year and as we have seen in some markets in the last few years, they can even go up by 5-10%. Are we all getting pay raises frequently to make up for that? Fine, rents go up, I am privileged with a high paying job and I can pay the higher rent, but many cannot. And if I do not want to pay the higher rent, I can move but who wants to move every year? That is a part of the inconvenience I mentioned. Heck, I keep signing two year leases to not just lock the rate for a while but I also do not want to move often. And since I am renting from a homeowner, the owner can always sell and the next owner may want to use the home as a primary residence which means I would have to move.
This is all fine in your 20's but at some point we have to settle in life and stability and security is nice to have. Owning means I control my destiny to an extent. I will vacate only when I decide to sell or when I am unable to pay my mortgage. I get to lock in the principle and interest. Only taxes can go up and the increase is capped in some states. Maintenance is an issue but it's not like with renting, all management companies fix your issues within 24 hours, tons of shitty managers will take their time if it is not an issue that results in uninhabitable conditions. The owner pays for maintenance but also gets to control the quality of the work and choose who do you want to work on your home. You hate maintenance, buy new construction or a newer home, of course it is easier in some states than others.
All good points. I'm actually in my early 30's, just don't have desire to have kids and if that changed, I certainly wouldn't want to be renting and have to worry about moving them around every time I'm not happy with a rent increase or my LL decides to go a different route.
And agreed that you're controlling your destiny by buying your house, though 5 - 10% rent increases are typically not the norm (it may be easy to forget given the insane rent increases past couple years, but I still remember years of flat rents or small increases, plus 1-2 month free rent concessions, etc and always being able to move to a new modern apartment when you feel like it instead of having to remodel your house). Right now, housing prices are so out of whack (at least where I am) that you're really paying a premium to own a home. That might make sense if you plan to be there for 10 - 20+ years and ride it out to the point where your flat mortgage payment is one day less than the rents that grew over the years, but I personally still consider myself mobile in both my life and career, so I can't even say with confidence that I'll still be in this city 2-3 years from now, much less 10 - 20. I think that's true for a lot of us that don't have kids (which I think is a growing demographic amongst high income earners).
Not gonna discredit what you're saying but I would almost never recommend someone to buy a house using FHA. I understand it's the only option for most Americans because they just don't have that kind of cash saved up. However, FHA mortgage insurance premium is insane. The insurance alone can be another 500-600 per month on a mortgage of 350-400K. I'd only recommend FHA if you're a high income earner whose mortgage with the insurance is comparable to rents in the same area.
Valid points but going disagree a little bit here on the FHA strategy. I agree that PMI can be expensive for a $400K+ home but I'll caveat that be saying better move is buying multi family with the FHA instead of a single family home. In some tier 2 cities you can get solid 2-4 unit properties that qualifies for FHA financing. If you buy right you can live in one of the units and rent out the others and offset your mortgage+PMI payment. I didn't know till I got into the game but you only have to live in the property for a year before you can move out and refinance out of the FHA loan and now rent out all units hopefully providing some decent cash flow.
Renting vs buying can make sense in certain situations. If buying and paying a mortgage is say $2k, and renting is $900, if you're saying the extra $1.1k, you're fine. Plus you don't have to spend on things mentioned above such as repairs or taxes. Problem is, most people won't save that extra amount, so in reality they aren't really building any equity anywhere (if you really think about it, owning a home is just forced savings.).
At OP, I did/am basically doing this with very cheap rent where I live. I read that article, I think its two fold. One is, there are nicer places to rent right now, more communities, schools may be better in these places as well if you have a family and can be an alternative to living in a place maybe you can't buy. The second is, people are making more yes, but they are spending more on non-essential things, so they don't have the down payment or cash flow for mortgages, and they also want to be less burdened, such as, " why am I going to mow the lawn when there's Netflix to be watched."
The other way I see it though...unless you have kids, you're probably going to be buying a 3+ bedroom house when you'd only rent a 1 bedroom apartment, so you're paying for more space/maintenance than you really need (nice to have, but at the end of the day you're paying for it). If you have kids or plan to have them in the very near term, then it's a totally different story since you're going to need that extra space (plus if I could afford to own a house, I'd never want to rent if I had kids. Not worth the trouble of worrying what next years lease brings when I have a family to worry about moving around town instead of just myself and my significant other)
100%. My girl and I are doing exactly this - ~$1.8K for rent/water/utilities, vs. a likely mortgage payment (depending on rates) in the $3.5-4K area.... $250K of income in a LCOL area, likely will get a $550-600K (max, again, rate dependent) house and hopefully have ~$300K+ of liquidity by the time we're ready to buy pre-down payment (~$150K -$170K post down payment)
I rent in a HCOL. Homes here are way overpriced for what you actually get. Plus I'm the type of person who prefers to lease to avoid long-term commitments (I once made the mistake of owning a luxury car OUT of warranty - yikes).
To build equity I pour another couple grand each month into a REIT. Of course that only works because of a high salary and minimal responsibility (single/no kids, etc) but I get my dividend on time each quarter (it includes appreciations/ my share of rents, etc.) and it feels great not to be responsible for anything.
Moving is admittedly annoying. We're seeing constant rent hikes and I can't find lease options longer than 9 months (greedy bastards) around here and I'm being forced to move further and further out to keep rent inflation off my back. But it beats paying 4 mill for a 1,000 sq. foot house.
I do believe in home ownership, but only in the best circumstances (high income, low interest rates, MCOL or growing city, place you want to settle)
Which REITs do you recommend looking into for passive cash flow? And is it really comparable to cash flow from an actual property?
I use Fundrise - annualized return since I started with them 5 years ago is ~12% (driven by 2021 at 24% - the non-outlier years are ~6% - 7%), but I only recently (in '21) started to ramp up those monthly contributions and try to substitute it for a mortgage, lol. Cash flow definitely isn't on par with owning DIY properties - you just get a nice dividend each quarter and the growth so far has been consistent (knock on wood - no down years yet) where equities had been wildly uneven. I do expect to cash out after retirement and use as an additional income source then.
Usual rules about diversification apply.
Yup. My girlfriend and I have ~$250K of combined income in LCOL area and are paying $1.8K/mo for rent/water/utilities. Very updated apartment... we continue to build cash.
You're a VP in corporate banking and make less than $200k? How?
I got this,...
I've commented this on other threads but take a look at your price to rent ratio.. Good practice for those of us living in very HCOL and making good money. I've been pretty actively looking in my market (Western US) since early 2020 and have found that at least for me, it hasn't really made sense to buy unless you're doing so for family reasons/stability
If I recall, if the ratio is over 20, it likely doesn't make sense. I believe the number for my market was in the low 30s at the time. Condo or small SFR of $800-900k+ is really tough to make work vs renting considering you likely get a much superior product while renting.
In hindsight, overbidding on something in 2020/2021 and getting a 3.5% rate may have made sense in the long run, but the mortgage payment of approx $5k at the time vs a shared rent of $3.5-4k really wasn't enough of a difference for me to bite the bullet. I ended up putting most all of my cash into CRE projects vs putting $100k+ down on a residence. Overall I'm glad I did and certainly would be when comparing to today's housing/cap mkts environment (All in payment would've been closer to $7k today)
Exactly. I live in a rent-controlled place that's big enough for me and my family, and the price:rent ratio for my place is 25+. Makes no sense to buy here, especially since my deal only will get better over time.
Ha, well if people live in NYC paying 2% cap to acquire a property with a 6% mortgage, I'd think you're dumb AF or just stupid rich. Renting in NYC is the only rational thing to do. I say save for a down payment for a future house or deploy it all in the markets
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Your post is entirely situational depending on the level of income, source of income, net worth, whether children are involved, public v private school, and miscellaneous personal finance considerations. For some high income people, renting is a clearly better choice. For others, it is foolish move. Even with higher interest rates, some should absolutely purchase a house.
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