Why Rent Out Your House?

[marko]

This one has me stumped: We regularly drive through a very affluent neighborhood where homes range from around $4MM to more than $10MM.

Over the past month or two "House For Rent" signs have sprouted up in front of four of them...four in about a 1.5 mile stretch. "For Sale" I get. Maybe one "For Rent" I could understand, but not likely at that level of home.

I can't find any rationale. When we moved to France for several years, we didn't sell our US house nor did renting it ever enter our mind. It was itself a high-end property though not in that class.

Maybe a temporary job relocation? Waiting for interest rates to come down in order to get a larger sale price?

Our state is experiencing a heavy "wealth outflow" with many wealthy moving to their more tax friendly winter homes but I doubt they're attempting to rent for just a few months. With the rich getting richer, I doubt these folks are downsizing to a condo.

Curious. I must be missing something as suddenly the idea seems to be quite popular.

Anyone with a better guess?

 

[braumeister]

I often read about wealthy folk from overseas (think Russian oligarchs, Saudi princelings, etc.) buying very high end properties here as a way to stash some of their wealth. If they can make a few bucks in the meantime through rentals, why not?

 

[Walt34]

People who rent that level of house have never seen the inside of one that has been trashed by squatters. If they had, like Marko, it would never cross their minds.

 

[marko]

I often read about wealthy folk from overseas (think Russian oligarchs, Saudi princelings, etc.) buying very high end properties here as a way to stash some of their wealth. If they can make a few bucks in the meantime through rentals, why not?

Yeah, but AFAIK these have been owned for years by local, "regular" families.

 

[Koolau]

A good rental agent has the ability to choose good renters. It's costs 10% but can be worth it. We had a rental agent for our town house before we moved to the Islands. She was worth her fee!

As far as "why?" An expensive house is "expensive" just to be sitting. It has taxes, insurance, maintenance, water/sewer/electric/etc. Renting it out could be to cover expenses.

One other issue is that an "empty" house has limited insurance or no insurance with some home insurance companies. It's better to have someone in the home and renting can do that for you. YMMV

 

[jollystomper]

From the renters perspective, sometimes folks who cannot afford to buy a "nice" house are willing to rent it, particularly for any perceived benefits for living in that particular neighborhood. FOr example, a quote from this NerdWallet article (need to sign in for free to read): https://www.nerdwallet.com/article/finance/rental-market-trends

Despite soaring rents, it’s still less expensive to rent than to buy. The typical rent for an average three-bedroom place is still more affordable than owning a similar-sized home in 95% of the 222 U.S. counties analyzed by ATTOM, a land and property real estate data curator, in its 2023 Rental Affordability Report.

From the renting persons perspective, it might be due to one or more of: demand for an area, a job move, a downsizing with no need to sell the larger house just yet, or an inherited house that the heir(s) have decided to rent for now. One of our sons shard a nice rental home for a couple of years before the homeowner's job moved him back into the area.

I have also heard, but not researched, companies - many overseas - buying up expensive houses to rent, based on supply and demand for rentals in an area.

 

[ivinsfan]

I'm guessing the reason is they want to sell but don't like current prices. Renting might bring in some income for the short term and I'm also guessing the would be sellers are thinking, ""prices have to go up".. Well No, prices don't have to go up and in fact very well might continue in a downtrend. Perhaps the realtor encouraged them to try and rent knowing that a rental might not happen. Maybe the realtor thinks a few months of no renters and no buyers will make the sellers see reason.

 

[Koolau]

I'm guessing the reason is they want to sell but don't like current prices. Renting might bring in some income for the short term and I'm also guessing the would be sellers are thinking, ""prices have to go up".. Well No, prices don't have to go up and in fact very well might continue in a downtrend. Perhaps the realtor encouraged them to try and rent knowing that a rental might not happen. Maybe the realtor thinks a few months of no renters and no buyers will make the sellers see reason.

Daughter just rented a very nice home in a very nice neighborhood for 2 months! I couldn't believe it. The house IS for sale but the owner was willing to rent it for that short period. I was surprised. I don't know what daughter is paying (I guess she would have told me if she wanted me to know.)

Her "real" house is being finished off and she'll be moving when it is finished and then the moving van will be dispatched with her stuff. The rentals was partially furnished.

 

[jollystomper]

People who rent that level of house have never seen the inside of one that has been trashed by squatters. If they had, like Marko, it would never cross their minds.

What I have seen for folks renting that level of house is that they never put a sign up, but go by word of mouth to find a renter, as they feel they would be less exposed to the home being trashed.

I wonder if the ones with signs up are likely not owned by individuals, but by companies..

 

[ivinsfan]

From the renters perspective, sometimes folks who cannot afford to buy a "nice" house are willing to rent it, particularly for any perceived benefits for living in that particular neighborhood. FOr example, a quote from this NerdWallet article (need to sign in for free to read): https://www.nerdwallet.com/article/finance/rental-market-trends



From the renting persons perspective, it might be due to one or more of: demand for an area, a job move, a downsizing with no need to sell the larger house just yet, or an inherited house that the heir(s) have decided to rent for now. One of our sons shard a nice rental home for a couple of years before the homeowner's job moved him back into the area.

I have also heard, but not researched, companies - many overseas - buying up expensive houses to rent, based on supply and demand for rentals in an area.

The OP is talking about houses priced from 4MM to 10MM dollars....from recent reading, houses around the 5 million dollar mark and higher are the toughest to sell. I'm wondering if the homes have furnishing in them?

 

[marko]

As far as "why?" An expensive house is "expensive" just to be sitting. It has taxes, insurance, maintenance, water/sewer/electric/etc. Renting it out could be to cover expenses.

The "why" is why rent out the house when you could be selling.

 

[ivinsfan]

Daughter just rented a very nice home in a very nice neighborhood for 2 months! I couldn't believe it. The house IS for sale but the owner was willing to rent it for that short period. I was surprised. I don't know what daughter is paying (I guess she would have told me if she wanted me to know.)

Her "real" house is being finished off and she'll be moving when it is finished and then the moving van will be dispatched with her stuff. The rentals was partially furnished.

Actually this would be a perfect example, you aren't giving up much if any time to sell that house, but also have some money coming in.

 

[braumeister]

Yeah, but AFAIK these have been owned for years by local, "regular" families.

Ah, well that's different. If you think they are probably still owned by the local folks, then I'm as stumped as you are.

 

[marko]

What I have seen for folks renting that level of house is that they never put a sign up, but go by word of mouth to find a renter, as they feel they would be less exposed to the home being trashed.

I wonder if the ones with signs up are likely not owned by individuals, but by companies..

Possible but I know for certain that one of them has been in the family for over 100 years.

 

[ivinsfan]

The "why" is why rent out the house when you could be selling.

Because the pool of buyers don't like the price points of the houses in question.

 

[jollystomper]

Possible but I know for certain that one of them has been in the family for over 100 years.

Maybe (for now) no one in the family, for whatever reason, wants to live there for now, but they want to keep it in the family long term?

Sometimes people look at the additional costs living in an expensive house brings, and decide that it may not be worth it, given their situation.

 

[GrayHare]

Some of these places probably have low interest mortgages, which would be lost by selling. Renting instead generates an income stream, creates tax deductions, insurance savings compared to vacant house, etc.

 

[Aerides]

Presumably at those price points they work with realtors and/or property managers to thoroughly vet renters and mitigate risks...but I don't think most people would rent out their home unless they really needed to.

Perhaps they are highly mortgaged, or badly advised? Could be anything.

I let my far more modest townhouse sit empty for a year before deciding to sell it. At no time did I ever consider dealing with the hassle of renting it out.

 

[braumeister]

I let my far more modest townhouse sit empty for a year before deciding to sell it. At no time did I ever consider dealing with the hassle of renting it out.

I had the exact same experience many years ago. A bit nerve-wracking, but I had heard horror stories about bad renters.

 

[Teacher Terry]

Once we rented our house out when we were young and could only sell at a loss. Rented it for 6 years, the renters did quite a bit of damage, we fixed it back up and then sold for the exact same price we were offered 6 years before which was a 6k loss. Never again!

 

[Walt34]

I had the exact same experience many years ago. A bit nerve-wracking, but I had heard horror stories about bad renters.

Same here. When we moved from MD, near DC, we discussed keeping and renting the MD house and moving to WV. The income stream from a good tenant would have been nice. That discussion lasted about five minutes. We sold the MD house and have never given it a second thought.

 

[RunningBum]

Maybe they aged out of their homes but didn't want to sell and pay taxes when the kids might inherit with stepped up basis in a few years. Renting helps defray the cost, as long as good screening of renters is done.

 

[marko]

Maybe they aged out of their homes but didn't want to sell and pay taxes when the kids might inherit with stepped up basis in a few years. Renting helps defray the cost, as long as good screening of renters is done.

Interesting scenario.

Just found it odd to see four spring up suddenly in one narrow area. I'm thinking there has to be some financial game going on in the UHNW crowd.

The signs are from high-end realtors so I'd presume proper screening is taking place. (Wonder what the security deposit is on a $6MM home? )

 

[Gumby]

I know that when you rent property, you get a tax deduction for depreciation, which is recaptured when you sell. But what happens when the property passes by inheritance? I ask precisely because I do not know, but I'm wondering if this is some way to get some tax deduction now without ever paying the piper later?

 

[cathy63]

If you inherit a property that is or was rented, you get a stepped up basis. If you continue to rent it out, you start your own depreciation schedule using the new basis. The previous owner's depreciation just disappears. (This may be different if you inherit from a spouse, especially if you were filing jointly, but I don't know.)

You can only depreciate buildings though, and in VHCOL areas, it's the land that has the majority of the value, so depreciation might not be as large as you'd think.