Apartment Loans are here. Should you Take Out a Rental Loan?

If I had a dollar for every time I hear a recent college grad talk about or show photos of their new upscale luxury apartment rental…

Seriously. I work at a large company that pays a very solid wage to new college grads. And where does most of that money often go, at a time when they have no kids and could be packing away significant savings for large future expenses like kids, a home down payment, or retirement? Straight into the pockets of their new landlord. That’s where. It’s quite heartbreaking.

Apartment rent is soaring as many millennials flock to highly desired urban centers, in order to be “close to the action” (read: within direct proximity to the bars they want to frequent with their friends). Or, perhaps they don’t want to miss out on particular luxury amenities or conveniences that they have convinced themselves are needs versus wants. This FOMO, in turn, drives up the cost of rent – as landlords can get away with charging more because people are willing to pay it. Can you blame them?

For renters, the high cost of rent has become such an issue, that apartment loans are now “a thing“, and many lenders are swooping in like an opportunistic bird of prey swoops in on roadkill.

That linked-to WSJ article highlights an example of an upscale apartment manager that operates in Atlanta and L.A.:

“StayTony hopes its renter loans will appeal in particular to recent college graduates. Through Uplift, it offers loans up to $15,000 that carry no interest for the first six months and an annual interest rate of 15% to 17% on average after that.”

While the article fondly points out that rental loan offerings like this can help keep renters away from much more nefarious loan operations like payday lending (with its 700% APR’s), that’s kind of like arguing that e-cigarettes will help keep kids away from smoking. Perhaps? But it would be much better for their health to have not embellished in either odious product at all.

apartment loan

Sadly, just like the high-risk mortgage products that helped fuel the financial crisis, apartment rental loans can give people justification to live beyond their means, while only further pushing up the average costs for everyone else.

Here’s the thing: if you have to take out a loan to afford to pay the rent for a particular apartment, then you simply can’t afford to rent there. Full stop. Find another apartment, or find an entirely different neighborhood or city.

And another thing: none of us are entitled to upscale apartments in prime locations, no matter what background you come from. They are called “luxury apartments” for a reason – THEY. ARE. A. LUXURY. A want, not a need.

As someone who is at least entertaining thoughts of building wealth (as evidenced by reading this), this is one of the top areas in personal finance where you really need to exercise restraint. I know how strong FOMO is when it comes to where we live. And if we’re not right in the center of it all, we build these imaginary stories in our heads on how we’re going to miss out on all of the action and be ostracized from our group of friends. But while your actual MO (missing out) while living in a modest apartment a half-mile away will be much smaller than your imagined MO, your friend’s MO when they are slaving away 60 hours a week at age 65 and you are retired and hiking through a beautifully scenic national park will be very real.

Not taking out an apartment loan is a really low bar. Just say “no”. Or, even better, “NOMO”.

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