by Ashley
We’re just beginning our third year of living in our little rental house. I still love it just as much as ever (though I’d also love a teeeeny bit more space – maybe a designated office), and especially the location. We’re outside Tucson city limits, but still a short drive away. We are in the suburbs: lots of family-friendly activities, parks, hike and bike trails, etc. And when we do finally buy a home, I’d love for it to be in our same general area.
So although we’ve started talking about the idea of buying a home (not now, but probably within about a year), we know we need to stay put for now in our current rental.
Our landlord is really great. We live in the landlords’ previous residence. It’s not managed by some big property management company. The owner takes care of all the repairs and maintenance. He’s very kind. We’ve made friends with his family. So I think we’ve gotten a deal with the rent, particularly considering it hasn’t increased at all since we’ve lived in the place….
…until this year. When we approached the landlord to say that we wanted to renew our lease for another year, he seemed happy to have us stay. Of course it’s less work for him (advertising, showing the house, finding a tenant, doing make-ready cleanup, etc.). But then we got the email with the lease attached…and an increased price tag to go along with it.
We negotiated a bit back-and-forth (side note: does anyone else ever try to negotiate rent? When we were living in Florida they tried to increase our rent by a whopping $300/month at the end of a year, but we were able to negotiate down to a $100/month increase). Finally we settled (and signed) for our new increased rental rate. Instead of $1055/month, we’ll now be paying $1200/month.
I still feel like it’s a fair rate. I’ve seen what other houses in our neighborhood rent for and we’re still on the low side of rent, even though our house has a lot of nice, upgraded features compared to other properties in the area. That, coupled with the fact that we didn’t have an increase last year, makes me feel like this really is a fair rate. If we were to try to move, we’d be unlikely to find someplace comparable that we like as much for $1200 or less.
So, I guess that’s life. One of the big benefits of buying, of course, is that you get to lock-in your housing rate (assuming you get a fixed rate mortgage). My hope right now is that this will be our LAST year as renters. That by next summer we’ll be looking for a place all our own. That by August of next year we won’t be signing a rental agreement; we’ll be signing our very first ever mortgage!
That’s the dream, now off to work so we can make it a reality!
Hi, I’m Ashley! Arizonan on paper, Texan at heart. Lover of running, blogging, and all things cheeeeese. Freshly 40, married mother of two, working in academia. Trying to finally (finally!) pay off that ridiculous 6-digit student loan debt!
I hate to tell you this, but even when you buy a house, your mortgage doesn’t stay at the exact same price. Our mortgage has gone up several times over the last few years. Our property taxes keep going up. Our home owners insurance has increased too. We pay about $200 more than when we purchased.
This.
You’re definitely right, but I think taxes tend to go up more slowly compared to rental rates. That all depends, of course. My sister, for example, bought a brand new house in a brand new development. After her first year the price of taxes sky-rocketed. Her mortgage went up by $300/month JUST FOR PROPERTY TAXES!!! But although that’s a huge increase, the flip side means that the house values are probably going way up, too.
I think that’s pretty unusual though. And when we look at places we’ll be able to see the home values/taxes across time. We won’t be buying brand new so I think it makes the pricing a lot more stable.
Don’t assume your house value is also going up. The giant tax increase might be because the school district passed a huge bond issue. Local government rarely gets cheaper to operate over time.
My home is underwater, but the taxes keep increasing. Sucks.
Ick! 🙁
Her taxes went up because her mortgage co. Could only legally collect an monthly average of the previous years taxes which were “lot” taxes. Taxes on an empty lot are a lot less than a lot with a nice house on it. Her mortgage lender and title/escrow company should have clearly explained that.
My fixed rate mortgage went up $120/month after only 6 months. Ugh! It was because they had incorrectly calculated my property taxes when my loan started.
Yea, Christy brings up an excellent point that mortgage brokers and lenders tend to leave off the info packet they give you (I once worked for a mortgage broker as a loan processor). So the guise that you buy a house and will have the same monthly payment for 30 years is inaccurate. Although the monthly payment of your loan stays the same, if you escrow your taxes or whatever else, your total monthly payment can change year-to-year.
Yes to the above! Our $200 monthly increase within the first 6 months due to taxes was a nice surprise. Not!
Ouch! Within 6 months? That’s painful!
This is something to think about when buying. I have friends who bought a very expensive newly built house, and thought they could afford it based on the monthly payments. What they didnt realize is that the taxes were based on the assessed value of the empty lot that was there before their house was built. 18 months later, the town got around to re-assessing, and the taxes skyrocketed because they now included the assessed value of the house. Now my friends are selling because they cant afford it anymore. Ouch!
Ohhhh! This must be what happened to my sister (I left a comment above mentioning how she bought brand new/in a new development and the price of taxes sky-rocketed after a year). She definitely talks about how she thinks their home purchase might have been a mistake. They consider themselves house-poor and have a huge mortgage compared to their income. But they’re also young and just getting their careers off the ground so they’re trying to hold onto their property with the hope that in a few years their income will grow enough that they’ll be able to keep the house and no longer be considered “house poor.” These are definitely good lessons for me to be learning NOW (as a renter) so I know what to look out for/think about when we’re on the buying side of the equation!
I think the industry average is a 3% increase per annum. Therefore, I think the increase is fair since you have not had one yet. Per the other comments on taxes, etc. Do your homework and also figure out if the market tanked could you afford to walk away and pay the difference. We built in 2005 and sold in 2014 and lost over $150,000 on the purchase price on our home and we also put another $100,000 into upgrades, etc. I guess we are lucky that we could afford to absorb the losses. Now, I live in the Chicago suburbs and my taxes are almost $15,000 a year. Yes, you read that number correctly. That is in addition to my mortgage. We knew before we bought new construction what the taxes would be at the higher rate (rather than the current low land tax amount), but do your homework! Are there likely assessments coming up for the streets in the neighborhood, etc? This can add thousands.
I guess we’ve been lucky – ours hasn’t gone up once except when we re-fied from a 30 year to a 15 year mortgage and it only went up less than $50 – we have owned this house for almost 15 years.
Just don’t freak out when you sit down to sign the mortgage papers and you see the FINAL numbers with interest…..I almost started hyperventilating and fainting…..but there is nothing like doing things in your OWN HOME!!!
If you are serious about buying in the next year – spend some time meeting with the mortgage people at your bank. (Meeting with them does not require that you get a loan with them.) With your self-employment and variable income, you should try to figure out what you will need to get a loan at an advantageous rate. Ask if/how your income-based student loan payments impact a potential loan. They will ask for every loan that you have outstanding. There may be things that you can be doing now to put yourself in a better position in a year.
Also, check out programs to help you with your first home. Not sure if this would help. https://housing.az.gov/general-public/arizona-housing-finance-authority
Curious! Aren’t there fixed mortgages? In here, we do. It seems expensive at the start but as one’s pay gets adjusted for the inflation every year and starts earning better in the long run, the mortagage payment becomes less hurtful. In this country taxes are not that big of a deal and not a part of mortgage payments. When you buy a new residence, the first year, it is tax free. Taxes kick in after the first year and nowhere near your rates.
On another note, I am a landlady and my tenant called me in May to discuss a rent increase. I told him, I am comfortable receiving the same rent for another year as long as he keeps up the payments on time as he always does. We decided to consider an increase next year based on the inflation rate. He was very pleased.
There are fixed rate mortgages but like scarr said above, if you put your property taxes & insurance in escrow (pay them with your mortgage and the bank holds them until they’re due & makes the payment from your escrow account), your monthly payment can change if your taxes and/or insurance rates increase. I think my payment has gone up almost every year since I bought my house 7-1/2 years ago. I’m not sure I would want to go back & check how much I was paying back then – it would probably depress me too much. When I was looking for a house to buy, I looked at one in the neighboring suburb; it was the same price as I paid for mine, but I couldn’t afford the property taxes. Definitely something to look at when buying a house.
Congratulations on negotiating on the rent! We ask for discounts every time we get a chance!
That’s still a reasonable rent. Longer term a house can be a blessing. Taxes and insurance do go up, but the principal doesnt. So if you assume these go up 3% per year, but they are only 25% of your payment – your payments may go up on average 1% per year. The more important thing to me is to REALLY, REALLY make sure its the house you want and can stay in for 10 years or more. I have made a lot of mistakes not looking at things like how rain drains on the property, things that need to be replaced within a short time, etc., neighborhood…. Overall its a positive experience. One real negative – if you don’t have 20% down you’ll end up with very expensive mortgage insurance which adds to home ownership costs.
I’m expecting a large rent increase this year also. Its about time for the landlord to play catchup to get the rent in line with comparables in the area. Also, we’ve had some costly repairs requested this past year that I’m expecting will play into the rent increase.
I get really anxious in the 6 months leading up to lease renewals from all the stress of a potential increase or potential search and move. The past 2 years we’ve seen around ~$55 increases. Last year the initial increase was $110 and I casually mentioned that happened to be more than my annual raise. A day later they came back and cut it in half. Getting these deals can only last so long until they want to get the rent back in line with other rental units.
Our mortgage has also gone up over time, now several hundred dollars more, largely due to taxes that we cant’ control. We were paying extra on our mortgage at first, but now we can’t do that. We even refinanced at a lower interest rate (that is fixed) but the taxes still have increased our rates at least $100 in a year. It’s just how it happens. We are also underwater now and bought a very modest home that was not out of our price range due to the crashing market here, so there’s not much we can do. Buying a home is not the financial investment it once was, at least not in our area of the U.S. But, we still like it better then renting for not much less, and having less autonomy over our living space. I would not buy a home assuming you will only live in it for a few years thinking you will be able to sell at all or sell at a gain to move somewhere bigger. That’s what we thought we would be able to do and the market had other plans. 🙂 We have 900 square feet and with a baby on the way we will have to get creative, but it’s a good exercise in not keeping crap around! And utilities are lower in a smaller home as well and less to clean! However, I do wish we had not bought when we did and weren’t stuck as the market changed drastically in the last 8 years. Renting is no guarantee that you get to stay in a place you love, but sometimes it has major perks over owning.
I mean having more autonomy over our living space. In the end, if we tried to sell now we might break even best case scenario, so it’s best to stay put and enjoy the investment we made in our small but lovely home. Maybe someday we can move, but we won’t have the money for another down payment again for a very long time, if ever. There’s no guarantee that the market won’t shift so that you lose your down payment /equity when you purchase a home. It’s just one of the risks you have to consider.
ThePima County Assessors website and Treasures office are excellent resources for getting a good idea of property tax amounts for every property. One of my many “hats” was to answer questions people had regarding their property taxes. In addition – depending on where you buy, fire insurance may or may not be included in your property tax bill. This is huge. I can’t tell you how many people think a line item called “Fire Tax Assist” = fire insurance. It doesn’t – feel free to ask me more questions if you want!
MJ
I ALWAYS negotiate rent increases. If I was in your situation I’d probably counter at $1100, and see what he says. It really does cost more to both parties if you leave than if you were to stay. However, a 13.5% increase in one year is a little much! Most leases have a cap of 5% per year.