Monthly Housing Expense
Housing costs can be divided into the costs of keeping a roof over your head (shelter costs) and the cost of investing in real estate to build equity (investment costs).
When you rent, you pay the shelter costs and your landlord pays the investment costs (and receives the gains). When you buy, you pay both costs and receive both benefits.
The numbers used to calculate monthly housing expense are:
Homeowner:
- Housing Expense: This includes your mortgage Principal and Interest, property Taxes and Insurance, which are referred to as PITI . These expenses will change with time, especially if you have an Adjustable Rate Mortgage (ARM).
- Maintenance: Keeping your property in shape costs money. Generally, you can expect that basic repairs and improvements will cost you at least 1 percent of the value of the house each year.
- Tax savings: Some of your expenses may be tax deductible, including your interest payments on your mortgage, and your property taxes. This is often one of the main financial reasons that people buy homes instead of renting.
Renter:
Rental Increases: Rents generally go up. When deciding whether to buy, you should think about how much you expect your rent to increase over the period you would own the home.
In general, landlords try to get as much money as possible in rent for their properties. If a lot of people want to move into your area, demand for properties will be high, and rents will go up.
But as new properties are built, or if a large number of people decide to move away from the area, supply will increase, and rental costs will either rise more slowly or possibly even go down.
Estimating Rising Rent:
If you want to project your rent amount over a long period of time, the rate of inflation (3%) can be a good rule of thumb. So if you assume that your rent will increase at the rate of inflation, you are looking at doubling your rent in less than 20 years.
If you live in an area where there is significant growth, rents can rise dramatically, sometimes as much as 10% per year as new people arrive and look for housing