For those who rent...or even if you are a home owner you should pay close attention. I'm certain that many people do not understand how rent is calculated. After all, those greedy landlords are just stealing from those poor tenants right?
In a previous articles I wrote that many military members decided to rent out their homes. Primarily because either they couldn't sell or they wanted to move back in the house they are renting after they retire. Renting out a house is a great learning experience, and is recommended for anyone who wants to be a military millionaire.
So, why does it costs so much to rent?
First of all...shelter in this country is expensive. Regardless if you rent or buy a home. Whether you rent or buy the following expenses may exist:
- Property Taxes
- Home Insurance
- Maintenance and repairs (upkeep, depreciation)
- Utilities (heating, cooling, water, sewer)
In the area where I live many of the houses (1000 sqft) are being rented for $800.
How much is this money going towards profit?
Well, if you used the 1% rule to purchase your house then you would have bought the house for $80,000. If you put 20% down this leaves you with a mortgage of $64,000. You can get a 15 year mortgage @ 3.3% costing you $451.23 per month.
Let's break it down
Rent monthly income $800
Rental monthly expenses
Mortgage $451.23 or 56.4%
Taxes $164 or 20.5%
Insurance $48 or 6%
Maintenance $75 9.3%
Utilitizes - renter pays
Total - $738.23 92.27%
Potential monthly profit - $61.77 or 7.72%
Why potential? Well, you still need to get a renter. Maintenance may or may not occur. If you count the time and effort landlords take to get a tenant screened and into the property you could be looking at a small amount.
Let's examine this further. If you notice property taxes is 20.5%. The government makes two times the amount the landlord receives. The quickest way to get your rent lowered is to have the property taxes lowered. This is a fact. Probably one of the reasons why rent hasn't gone up as much as it should have is because property taxes actually decreased in many areas.
Regardless if you own or rent...you are paying property taxes. Just because someone pays the bill for you, doesn't mean you are not paying. Be sure to keep this in mind next time your local government wants to raise money though property taxes. Taxes is the second largest expense a landlord has to pay, and the same would be true for homeowners.
Video is an Autotune the news video. It seemed appropriate for the subject matter.