Renters represent a considerable, but difficult-to-reach market opportunity. Renters embody a large population of potential homebuyers, with 37 percent of households being occupied by renters —roughly 110 million people — according to the National Multifamily Housing Council.
However, many of those renters aren’t in the market, and it’s important to understand why. Typically they feel like they are trapped in a rental situation, and that they possess few options for gaining a toehold in the American Dream of homeownership. You can turn that around by convincing them they can break into homeownership.
Fortunately, the numbers are on your side. By simply providing some solid education to renters, you can tap into this massive market of prospective homebuyers. There are several strong arguments for buying instead of renting; let’s review some key points you can make to convert renters into buyers:
- Renting is expensive — too expensive. Renters lament that their rents are too high, and with good reason: Rent expenditures now gobble up 30.2 percent of the national median household income, according to real estate market watchers at Zillow. That’s nearly double the roughly 15 percent of household income homeowners spend on their mortgage payments, according to the Bureau of Labor Statistics.
- Rents go up. While the payment on a 30-year, fixed-rate mortgage doesn’t increase; rents most assuredly go up — usually every time a renter renews his or her lease. Moreover, given that vacancy rates are at low levels (roughly 4 percent according to analysts at Reis Inc.), renters can expect rents to stay on an upward path. Over the course of even just a few years, rents that start out lower than a monthly mortgage, can quickly exceed it.
- Homeownership is more than just a place to live. Unlike renting, buying a residence is an investment that you also call home, whereas your monthly rent check confers no financial benefit. Moreover, the payment on a 30-year, fixed-rate mortgage doesn’t increase, but rents most definitely go up — usually every time you renew your lease.
- Now is an ideal time to buy. Interest rates on mortgages are at all-time lows. It is tempting to believe that those rates will always be available, but once incomes gain some momentum, interest rates will quickly grow. It’s also tempting to think that prices will come down, but renters thinking of buying should remember that on a historic timeline, home values are approximately where they should be based on “normal” housing appreciation from values before the 2008 housing bust. The bottom line is that timing the market doesn’t work, and anyone on the sidelines needs to get in the game.
- There are loan options available. Some renters might worry about the qualification process, or look at a 20 percent down payment as insurmountable. However, there are many loan programs specifically to get young buyers into homes. For instance, private mortgage insurance is always an option to help secure a loan with a higher down payment, and FHA loans only require 3.5 percent down.
Ultimately, the reasons many renters remain renters is that they don’t know their options. The key in tapping into this market lies in providing renters with convincing information on how they can cross the threshold into homeownership. If you would like to learn more about the lending options available to help renters become buyers, your loan consultant is here to help as a home financing partner.