In today’s constantly shifting real estate market, an increasing number of sellers are choosing to become landlords instead of selling their properties.
A recent article from The Real Deal highlights that this change is driven by historically high rents and the potential to take advantage of the profitable rental market.
Additionally, with sellers wanting to hang on to their properties with lower interest rates, the appeal of renting out their apartment vs. selling and buying a new home at a higher rate has become more popular.
This underscores a key trend: homeowners are holding onto their properties, leveraging the strong rental market to generate income until conditions improve.
Market Conditions Driving the Trend
Several key factors are contributing to this growing preference for renting versus selling:
Record-High Rents: As reported by The Real Deal, sellers are enticed by the potential income from renting, especially as rents approach record levels.
Rising Mortgage Rates: With mortgage rates still on the higher side, homeownership has become less affordable for buyers, making the rental market more attractive for property owners. According to Platinum Properties agent Jess Prichard, “When rates are elevated, buyers face higher costs, which can reduce the pool of qualified buyers. Renting allows owners to earn rental income while waiting for market conditions to improve. In a city where two-thirds of the population rent, there is always demand for quality rentals.”
Cooling Housing Market: As Opendoor points out, “After a heated seller’s market, rising mortgage interest rates are putting pressure on the housing market. Every time mortgage interest rates rise, more would-be home buyers can be pushed out of the market due to higher homeownership costs.” With home prices cooling, it’s no surprise that many sellers are choosing to rent instead of listing their homes.
Slowing Home Sales: As the sales market cools, many sellers are turning to rentals as a way to generate income while waiting for more favorable selling conditions.
Low Mortgage Rates on Existing Loans: Many owners have locked in low mortgage rates from a purchase during the COVID-era, giving them an extra financial advantage to keep their properties.
Impact on Different Property Types
This trend is affecting various segments of the real estate market:
High-End Properties: Luxury properties and new developments are increasingly exploring rentals as a viable option.
Co-ops: Even co-ops, known for their strict rental rules, are becoming more open to rentals to avoid diluting their value. The Real Deal notes that the three most expensive co-op rentals on StreetEasy were listed in the past three months.
New Developments: Some new projects are shifting focus to rentals. For example, a 25-story project at 100 Vandam Street, initially projected for a $400 million sellout, has seen only nine units sold but is now focusing on rentals.
Jess adds that condos in particular are seeing this trend. “Many condos in New York City were built more recently than co-ops. The floor plans can also be larger than all-rental buildings. Updated finishes and/or more space can bring attractive rental prices. Brooklyn condos built over the last five to ten years have owners who likely borrowed with favorable rates. So they’re asking whether to cash in the appreciation or continue enjoying rental profits with their favorable rate
Considerations for Property Owners
For those contemplating whether to sell or rent their New York City apartment, several factors should be considered:
Long-Term Financial Goals: How does renting vs. selling align with overall financial strategies?
Market Timing: What are the current and projected market conditions?
Maintenance Responsibilities: Are you prepared for the ongoing responsibilities of being a landlord, including any potential repairs and maintenance that need to be done to the property? Prichard often advises clients to consider the time and effort involved: “Like most decisions, it often boils down to time and effort versus money. Balancing numbers and real-life scenarios helps clients make the best decision.”
Tax Implications: How will renting vs. selling impact your taxes?
Prichard also shared a key piece of advice: “I start with a thorough market analysis for both a sale and a rental. This provides a solid data set for their decision. I then ask them about what it would look like to be a landlord and the time and effort it would take. These practical considerations are crucial when deciding whether to rent or sell.”
Long-Term Property Value: Prichard emphasizes two questions that should be taken seriously: “Well-maintained rental properties with a proven track record are always attractive investments for potential buyers. However, poor management or neglect can lead to deterioration. Anyone considering being a landlord should realize it takes a great deal of effort. But it can bring great rewards.” Sellers should ensure their property is properly managed to preserve and even increase its long-term value.
Looking Ahead
While this trend of sellers opting to rent their properties is noteworthy, it’s important to remember that real estate markets are cyclical and subject to change. Jonathan Miller, a New York City-based appraiser, predicts that the renting trend might not last forever. He anticipates a Federal Reserve rate cut this month, which could lead to lower rents and increased sales activity. “When there is a rate cut, rents will slip and housing activity will pick up,” Miller noted.
As real estate professionals, staying informed about these trends and understanding the underlying factors is crucial. By doing so, we can better advise clients and navigate the ever-evolving New York City real estate market.
Whether you’re interested in renting your unit, selling, or searching for a new home, Platinum Properties is here to help. Contact us today to be connected with one of our trusted agents to find the best real estate solution for your needs.
