As many of you are aware, one of the many perks of home ownership is the fact that you can obtain what’s called a “fixed-rate mortgage loan,” or a home loan whose interest rate and required period payments remains constant throughout the term of the loan.
However, this option is definitely not available when you are a renter.
Each year, renters are subject to rental price increases (with the exception of areas like New York where rental increase restrictions exist). The amount of the increase varies depending on location, the owner of the property, and the amount of maintenance that is required. However, a good low-ball estimate for the inrcrease in price is the average rate of inflation, 3.2%.
Side note: in my experiences, however, the rate of rental price increase has been higher. In college, I lived in/rented a room in a house for 3 years. During this time, the rent increased from $300 a month to $400 a month. This equated to an average rental price increase of 11.1% per year. Furthermore, in the house I lived in for 1.5 years in Virginia, the rent started out at $500 per month and then increased to $530 per month. This equated to an average annual increase of 4%.
In both of these cases, the value that I was getting from the apartment was definitely well worth the added increase, so paying the extra amount didn’t matter.
However, this and other evidence serves as a good reminder that the cost of rent will indeed increase over time! And, it is good to begin to quantify this increase ahead of time so you can be prepared for the financial ramifications.
To assist in capturing this picture for everyone’s specific circumstance, I created a customizable rent calculator using Excel. The link to the spreadsheet is shown below.
To use it, download an Excel version of the file to your desktop/hard-drive, and just enter the following information in the purple highlighted cells on the left:
- Current monthly rent
- Assumed increase in rent each year (or just leave the default value of 3.2%)
- The number of years you expect to live in the house/apartment/condo/townhouse
The spreadsheet will then automatically calculate 1) the monthly rental cost in each year that you expect to live in your housing unit 2) the % increase from the beginning rent price and 3) the total cost of renting the housing unit over the time period.
I hope this calculator helps you to achieve your financial goals! Please let me know if you have any questions.
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