Why Do Tenants Rent Instead of Buy?

Why would someone rent a relatively cheap home—why wouldn’t they just buy it? Wouldn’t a mortgage on a low cost home be cheaper per month than renting? These are questions we get from time to time. Some people doubt the economics of a market where people are unable to purchase a low cost home in the $40-50k range.

However, more and more people are deciding to rent. I’ve found that there are three major reasons why some people choose to rent, instead of becoming homeowners.

1) Mindset. As a real estate investor, it seems like the obvious answer to simply purchase a home. But here’s the thing: not everyone thinks like you and I. Not everyone wants to own a home. They might have a different perspective. Perhaps they want the flexibility and impermanence of renting. Maybe they don’t want the headaches and hassles of fixing things around the home; they can just call the property manager if something goes wrong. Maybe they didn’t grow up in a home that their parents owned, so that’s the norm for them. Not everyone has the same views about real estate and home ownership that you and I do, and that’s okay.

2) Money. Most banks require a 20% down payment for a mortgage. On a $40,000 home, the down payment would be around $8,000. Maybe that doesn’t sound like a lot of money to you, but it might be for someone else. Plenty of people across the country do not have an extra $8,000 sitting in a bank account. For those people, renting makes more sense.

3) Banks. Many banks won’t put a mortgage on a low cost home because it doesn’t make them much money. Additionally, banks have an exhaustive vetting process. If you’re someone who has a low credit score or job instability, chances are you won’t qualify for a loan.

In the end, it comes down to individual situations, but there are many reasons why tenants rent. We as investors should be glad they do, and continue to provide sold homes for our tenants.

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