Why some renters are buying homes they'll never live in
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Illustration: Sarah Grillo/Axios
If you can't afford a house in your city, what about an investment property somewhere else?
Why it matters: Some people are becoming homeowners while continuing to live in their rental apartments.
That can make sense for renters with extra cash who want to remain in a costly area and start building equity, according to Realtor.com chief economist Danielle Hale.
How it works: They "would look for a less-expensive market where their savings might be able to translate into a nice down payment," Hale told CNBC.
- Dubbed "rentvesting," the strategy often involves taking on landlord responsibility from afar.
The big picture: Starter home prices are over 51% higher than they were before COVID-19, with the median reaching $250,000 in August, per a recent Redfin analysis.
- In several major U.S. metros, buyers need at least six-figure incomes to swing the area's typical starter home.
And not everyone is racing to move into a house.
- As affordability tanks, some people prefer the buzzy locations and amenities that apartments can offer.
Cole Flynn rents a place on Long Island and co-owns a townhouse in Tampa, Florida, with two friends, all in their early 20s.
- They used their bonuses and worked with Nestment, a company that helps first-time homebuyers "hack" the market, to purchase the property last year for $357,000.
- Real estate agents nationwide say they're helping clients find similar deals.
What they're saying: "We're building equity in a home right now before we turn 25," Flynn tells Axios.
- It's "something I never thought was even a possibility," he says, pointing to exorbitant New York home prices.
- The trio expects a 16% annual return on their investment, including rental cash flow and appreciation.
The latest: Small investors, or those who have owned up to 10 homes, accounted for nearly 63% of investor purchases early this year — a record in Realtor.com data going back to 2001.
Reality check: Owning a rental home isn't easy living.
- Rents are cooling in parts of the country as homeowners' insurance and other costs rise.
- Plus, cities are cracking down on short-term rentals.
Flynn and his friends manage the property remotely using Taskrabbit for maintenance. (Their first tenants signed a one-year lease.)
The bottom line: Buying a home these days requires creativity.
