Why do people rent rather than buy at the high end?

July 4, 2014 – 11:17 am

On Quora, the question “Why do people pay $10, 000 to $100, 000+ per month rent instead of buying a place? ” was asked.

My answer was, obviously aimed at the high-end, but most of the points relate to the whole of the market:

There are various reasons people choose to rent rather than buy. Many of these are just as true at the $10, 000-and-higher end of the market as they are at the $1, 000-and-lower end.
1: They can’t get a mortgage. In order to secure a tenancy, you typically have to come up with about three months’ rent in ready cash – for a mix of deposit, costs, and the first actual rent payment.

In order to buy a property, you might need to come up with a 20% deposit.

Just because you could afford $10, 000 a month rent, doesn’t mean you could come up with $500, 000 in ready cash for a down payment.

2: They expect that property prices will fall.

If you think that property prices will fall 10% this year, would you rather buy a $2m place, and find it lost $200, 000 over 2011, plus pay maybe $50, 000 in mortgage interest… or would you rather spend $120, 000 in rent over the same period?

In my experience, this is more true at the high end of the market, probably because of the financial sophistication of the people who would do such a thing.

Source: Negotiation, Negotiation, Negotiation

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