Little (big) Rise: Escalation-flation?

Want to know the best way to guarantee inflation in your life? Rent!

Those smallish incremental annual increases add up:  recently elevated inflation highlighted inflation, but few still acknowledge that it has always existed although at lower levels. While buying a home is expensive for most, renting is far from cheap and the one cost associated with rents that few mention are those annual increases, even if they are rather 'little', say 2%.....

Let's take a monthly rent of $2,000 as an example. That cost is usually only fixed for one year. If that rent increases by just 2% annually - the desired rate of inflation - that payment will be $2,390 in year 10. So while your first year total rent expense would be $24,000, by year 10 that jumps to $28,680. Too many would 'assume' that when signing a lease for $2,000 per month your 10-year housing cost will be $240,000.....in reality with the 2% annual increases compounded, your additional costs are $22,752....or $262,752 in total.

Yes, ownership - even with a fixed mortgage - has rising costs too:  insurance, real estate taxes, maintenance, etc. But this is usually offset by potential tax-free/reduced tax longterm capital gains, tax deductions, equity building, etc. Over 10 years, however, a $400,000 mortgage at a 6% interest rate, builds equity of over $45,000 alone, without any capital gains considerations.

Renters also move more frequently than owners although this has slowed a bit recently: Most renters move within 5 years, with 25.6% moving within 12 months. Moving costs can include re-decorating, fees, loss of productivity, etc....besides the actual moving van cost.

Guaranteed rising costs are a consideration in calculating housing costs.....