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Rent Increase
Many people choose to rent because they cannot afford to pay monthly mortgage payments or the initial down payment required for most housing purchases. However, it is inevitable that the rent is going to increase. Let's discuss how to determine potential rent increases.
We can model the possible rent increase by using an exponential growth function similar to the one we used to predict the future resale value in the previous lesson.
Formula: Y = a (1 + r)t
In this formula:
- a is the current rent
- r is the expected % of increase
- t is the time
Example #1
You are renting an apartment for $600 per month. The expected rent increase for your area is 2% per year. What will your predicted rent be in 10 years?
First, convert the percent (2%) to a decimal (0.02). Then, plug the information we have into the formula.
Y = a (1 + r)t
Y = 600 (1 + 0.02)10
Y = 600 (1.02)10
Y = 600 (1.2190)
Y = 731.4
It is predicted that your rent will be $732 in 10 years. Notice that the amount was rounded up to the next whole dollar amount.