The Hidden Costs of Renting

There is no such thing as a hidden costs to homeownership. When you own a home, no repair, maintenance nor service is charged to you unless you give someone permission. Your name goes on the bill, the bill gets mailed to your house and then you pay the bill out of your bank account.

Renting, on the other hand, comes with seemingly endless hidden costs. When charges mount, no bill is presented – and no permission is asked. You pay your rent and rent increases blindly, without reason or explanation.

Here’s a taste of just a few of the costs you are paying when you rent.

hidden costs of renting

Landlord’s Profit

Your landlord might be a nice person, but they aren’t renting to you at cost. They hope to earn a nice profit off of your stay in the rental. I’ve heard that a 15 percent profit margin is common. If your landlord has multiple units, profit might be an even larger portion of your rent payment in order to cover vacancies of other units.

Services You Aren’t Using

Are you allowed two parking spaces, but only use one? You get to pay for both. Do you use all the facilities and amenities offered? You should, because whether you use them or not,  your rent covers the costs.

Upgrades and Maintenance to Other Units

Jealous of the recently completed remodel of the unit next door? Perhaps you should be. After all, your rent payments helped pay for your neighbor to get a new kitchen.

This isn’t just true of upgrades, but repairs and maintenance to other units. You are footing the bill for every leaky roof, whether you live under it or not.

Poor Quality of Your Own Unit

I compared my home’s heating bill with a friend renting part of a nearby house. He was shocked to find that he paid substantially more in electric. His apartment had old windows, poor insulation and an inefficient heating unit. As a result, the heat was constantly running. The worst part was, there was nothing he could do to fix it but to move out.

For those that think they are dodging the bullet because utilities are included, you still are subsidizing the unit that uses the most utilities. That’s because at the end of the day, the landlord pays one bill and spreads the costs out to the other units.

Greater Probability of Insurance Loss

At least when you own a home, a house fire is the result of your negligence, your faulty electrical or your bad luck. When you live in an apartment building, it only takes one tenant or business to burn your living space to the ground. How much do you trust your 30 neighbors’ diligence or luck?

Opportunity Costs

Think of everything that you are losing by renting instead of owning. You are subject to paying higher rent from inflation, and at the same time miss out on home appreciation that homeowners benefit from. You don’t get to itemize your taxes, because you don’t get to deduct a portion of your housing costs. You lose interest in letting your landlord hold onto your security deposit indefinitely. Meanwhile, your security deposit loses purchasing value thanks to inflation.

Externalities

Economists love to use this word, because it’s hard to explain. Basically, an externality is anything that reduces your happiness because of circumstances outside your control.

It could be the midnight bedroom antics of your neighbors. Maybe the fact that you are not  allowed to decorate your apartment the way you want it. Perhaps it’s off street parking that causes you a longer commute or encourages theft.

The possibilities for externalities are nearly endless, and although it’s impossible to put a price tag on them you are definitely paying for them in other ways.

This isn’t to say that everyone is better off owning. I have little doubt that renting can be the best financial choice for either the housing market or lifestyle. It’s important to understand that while homeownership has many costs (perhaps more costs than you are aware of), renting has its own unique costs that are worth considering before becoming a renter for life.

10 Responses to The Hidden Costs of Renting

  1. When utilitites aren’t individually metered in a mult-family home, then you wind up paying your neighbors unfrugal habits. My water bill for January was $40!

    Even worse was the four-plex we used to live in. The guy above us left his window open all winter long. We left our heat at 60, but that guy probably single-handedly doubled our heating bill.

  2. I hated having to pay rent as it just felt it was going out the window. That’s not to mention the fun of neighbors with apartment living. The only benefit I saw when renting was not having to fix something on my own. The fact is though you have to wait on the landlord and they often do the cheapest fix possible.

  3. krantcents says:

    Good points! Most tenants do not realize it, but too low a rent affects the tenant too in a negative way. If the rent is too low, the landlord cannot afford to keep the building up. So eventually, the property will have deferred maintenance.

  4. I’m not saying there aren’t hidden costs to renting, but I wouldn’t be so quick to agree that there aren’t hidden costs to homeownership as well.

    Imagine that you live in an area that doesn’t have sewer service and the local utility decides to expand service to your house. You have no choice… so now you have a bill for about $10K? Sure, maybe you got to vote in a referrendum on it, but you have no say in whether that bill comes to you or not!

  5. Nunzio Bruno says:

    I do love to toss around externalities a lot when I’m lecturing to my econ classes :) Great post and summary of the potential hidden costs that people might not even think are extra. Especially when it comes to utility bills. Personally I just changed about every light bulb in my place to energy saving bulbs just to try to keep curving my own costs. I think that you definitely have to be aggressive when trying to manage your costs and almost think creatively about how and why you are being charged/paying for services.

  6. good points! Getting your own place is always better than renting because you know that after several years you’ll own the place. Not to mention the hidden cost you have to pay for your landlord to maintain the place.

  7. STEVEN J. FROMM, ATTORNEY, LL.M. (TAXATION) says:

    Great post and your points are well taken. However, owning is not so hot either. I have a niece who bought a house 5 years ago and she is $30,000 underwater! Also, my township marked up driveways, curbs and walkways that need to be repaired. Then they sent a letter stating that our local and state ordinance requires that the homeowner make these repairs. By the way, one of the curbs was trashed by the township snow plows. Guess who is paying for all of this?

  8. Sarah says:

    A few other expenses built into rent:

    HOMEOWNERS INSURANCE
    In addition to your own renter’s insurance policy (if you have one), your rent helps to pay for the landlord’s insurance on the entire property.

    COMMON AREA MAINTENANCE
    If you live in a building with any common areas, your rent helps pay for maintenance and utilities for those areas.

    LANDSCAPING/SNOW REMOVAL
    When you own a home, you can choose to mow your own lawn, rake your own leaves, and plow your own driveway. Most landlords hire landscapers and build the cost into your rent.

    TRUE TAXES
    In New York, most homeowners are entitled to a school tax exemption (STAR) which greatly reduces their annual tax burden. However, it only apply to your primary residence… so landlords generally aren’t eligible. Therefore, you will pay higher taxes through rent than you would on your own.

  9. Just bought a house last year. I am so happy to be out of the renting (throwing extra money down the drain) cycle. There is insecurity as well. We had a bank put foreclosure papers on our front door. Landlord said it was nothing. We did’t believe them and left. Guess what house is vacant!

  10. eemusings says:

    GREAT post! I’ve been burned at having to use a particular power company in one apartment block (with ridiculous prices) and having to split utilities with others equally because there was no meter for just our dwelling.

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