Americans realise value in renting

Published on Saturday 5 February 2005 01:57

SHOULD we sell our flats and houses to realise the substantial increase in their value and then rent until property prices decline? This is a discussion friends and I in New York have been having frequently. A few people I know have sold, capturing the nearly seven-figure gains they’ve made on their property. Each is now happily renting a very nice place until a good deal to buy comes along.

I cannot imagine having this same discussion with many people anywhere in the UK. The idea of renting instead of owning once you’ve made it onto the property ladder is not part of the UK’s property ethos.

Many people I know in the UK have kept the first flat or house they bought, turning it into rental property, when they bought their next home.

If they can buy and hold onto enough properties, thus creating a property portfolio, it may produce enough income for them to live on currently or later in retirement. At worst, the property will cover its carrying cost and they will eventually make substantial gains when the flat or house is sold.

This mindset does not exist so pervasively in the States, especially in New York. Almost none of my friends, regardless of their economic circumstances, keeps the old property when they buy the next one. They sell the old and buy the new. In the US, it is considered better to realise the profit and have the money in the bank rather than leave it subject to the risk of the property being unrented for a long period of time or of the property’s value declining unexpectedly. Also, few individual homeowners want to be landlords. The rent laws in many places tend to favour the tenant, not the owner of the property.

Importantly, the attitude toward renting is very different as I discovered when I rented in London. In the States, renting is not always considered to be throwing money away or lining the landlord’s pockets.

I happily rented a large studio apartment on Madison Avenue in Manhattan for the first 13 of my now 22 years in the city. Many of my friends have rented for even longer. Not only did I want the freedom of not owning and having to take care of property, but the numbers just did not make owning a reasonable option.

When I looked at the amount of money I would have needed as a deposit to buy a place, plus the monthly mortgage and maintenance payments, the rent I paid was a bargain.

In my first two years in the apartment, the rent ate up about 65% of my take-home pay. (I became an expert at coupon clipping at the supermarket.) Over time this percentage declined substantially. I was able to save more money and invest part of it in the stock market, which in some years yielded gains higher than any I could have ever made in property.

I spent my own money to improve this rented apartment. I had bookcases built around the fireplace. I had woodblock counters installed in the kitchen. I loved this place.

But there came a point in the early 1990s when the numbers, especially my income, said it was time to buy. Rent increases had made the apartment less of a bargain, and the tax advantages I would get by buying property made not owning a stupid decision.

So I bought a two-bedroom, two-bathroom apartment - quite a step up from my large studio. Strangely, this was also about the time that most of my friends began buying their first places. We were all in our mid-to-late 30s - late buyers by UK standards.

It is ironic that about 15 years later we are talking about becoming renters again and some are actually doing it. Frankly, I don’t think I will sell and rent. It involves too much hassle. I like and enjoy where I currently live.

But I will admit that realising a potentially seven-figure gain is very tempting. Instead of renting, I would probably sell my large apartment and buy a smaller one. Perhaps the UK’s property attitude is rubbing off on me after all.