Renting beats buying in many US markets

Dear CPI Capital Real Estate Investment News Subscriber,

As the cost of housing continues to soar across the US, deciding whether to buy a home or rent one can generally be a difficult choice.

But when property prices have risen, or are rising rapidly, this choice becomes even more difficult as the chances of a correction in prices is high.

Furthermore, there are certain, almost irreversible, factors in play which point towards continuing, increasing demand for renting property as compared to buying. But, as we’ve said before, neither the homes sales or rental market are homogenous and there are always going to be variations in the timing of real estate cycles and movement of prices and rents across the 50 States.

Changing perceptions

It’s interesting to note how perceptions have changed about homeownership, a concept which has been, and still is, actively promoted by successive US governments. But the housing crash between the years of 2006-2011 helped change such perception for many potential home buyers from one that traditionally considered owning as a far better option than renting and reinvesting for building wealth.

Other factors, of course, come into play but the BH&J Buy vs Rent Index, first started in 2013, shows that even when home prices are rising, renting and reinvesting can offer very attractive returns for investors.

Sustainable nationwide demand drivers for rentals

There are a myriad of factors which indicate that demand for multi-family rental property will be sustained and we have covered some of them in recent newsletters, but just a short recap:

• affordability: as home prices rise, many people are having to forgo the opportunity to own a home as they simply cannot raise the required deposit or afford the mortgage repayments;
• the ongoing advent of the “silver tsunami” where many retirees are selling their homes and choosing to rent using their capital to live off or enjoy greater flexibility by renting “6-months here and 6-months there;”’
• millennials and a more flexible workforce: why be tied to one place if you can work from home.. wherever that may be: sunnier winter climes and somewhere else for the summer. Plus, more mobility in job opportunities in different States or even fears of losing one’s job in these uncertain times, encourages others to rent not buy.

So, let’s have a look at renting vs buying some selected markets

According to studies by professors at Florida universities, there is strong evidence that home prices in certain property markets are much higher than their respective long-term pricing trends. Such markets include Seattle, Houston, Dallas, Denver, Houston and Kansas City and investors looking to build wealth are likely to be better off renting a property and reinvesting the money instead of buying real estate.

Although the potential for price declines isn’t as severe in Miami, Pittsburgh or Portland, the preferred choice is likely to be renting.

However, in cities such as New York, Atlanta, Boston, Chicago, San Diego, Cincinnati, Cleveland, San Francisco, Detroit, Honolulu, Los Angeles, Milwaukee, Minneapolis, Philadelphia, and St. Louis, investors are just as likely to create more wealth by renting and reinvesting as owning, so there’s currently some sort of equilibrium.

We find it fascinating when we analyze different real estate markets across the country to see how markets and sub-markets are moving—what’s going up in value, what’s not moving, where new demand is coming from and so on.

CPI Capital sees all sorts of potential deals across various property sectors every week, and we remain convinced that, due to almost seismic shifts in the way occupiers look at property, multi-family assets will remain in strong demand.

After all, despite strong demand leading to rising rents, renting a property still typically costs less on monthly than paying a mortgage, home maintenance costs, homeowner association dues and so on.

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Yours sincerely,

-August Biniaz

Chief Strategy Officer, Co-Founder CPI Capital