Why is My Rent Higher Than the Mortgage?


You’re a smart cookie. You’ve estimated the mortgage payment that your landlord makes. And you’re feeling a little miffed. Your rent is higher than the mortgage!

Does this mean that your landlord is lining his pockets with pure cash? Not necessarily.

When you rent an apartment or house, you can’t make a straight-line comparison between “mortgage” vs. “rent.” There are plenty of “invisible” expenses that you enjoy, perhaps without realizing it.

In this article, we’ll explain all the expenses you rack up — on your landlord’s tab. By the end of the article, you might feel better about your monthly rent.

#1: Repairs

Remember that time the toilet overflowed? And the time the sprayer hose on your sink started leaking?

What about that time the roof sprang a minor leak, filtering down to the drywall above your ceiling … but you didn’t mention anything until it became really bad?

Believe it or not, these repairs cost some serious dollars. If you owned the house, you’d need to pay for these repairs in addition to the mortgage. Since you’re renting, though, you can enjoy making a fixed monthly payment — even if the refrigerator stops running or the dishwasher starts acting strange.

#2: Annual Maintenance

Your home needs ongoing maintenance, as well.

The HVAC system needs an annual tune-up. The attic needs more insulation. The dryer vents need to get cleared.

Someone needs to clear the gutters every fall, aerate the lawn in the springtime, and plant some new grass seed to fill the bald patches.

And in most multifamily dwellings, the landlord is responsible for clearing the snow, blowing the leaves, and trimming the shrubs and trees.

If you live in a condo, town home or gated community, your landlord likely pays a homeowner’s association fee, which takes care of exterior maintenance (for a steep fee.) If there’s no HOA, these costs don’t simply disappear; the landlord foots the bill and additionally coordinates and manages the contractors.

#3: Replacements and Upgrades

Asphalt-shingle roofs last for about 25 years before they need to get stripped off and replaced. Vinyl windows tend to last for about 30 – 35 years. Dishwashers last about 9 years, the refrigerator will last for about 13 years, and the stove has an expected lifespan of about 13-15 years.

The carpet will need to be replaced every 5 – 10 years, depending on its thickness and how you treat it. Your sink faucet will need to get replaced after about 15 years, and the sink itself will only last about 10 years or less.

In other words: Everything within your home is deteriorating and aging before your very eyes. (That’s a strange thought, isn’t it?) And a portion of your rent covers this wear-and-tear.

How much does all of this cost? Costs vary wildly depending on your location, the age of the property, and the level of finishes. As a very rough rule-of-thumb, maintenance and replacements (points number 2 and 3) cost one percent of the property value annually.

In other words, if you live in a quadraplex that’s valued at $350,000, maintenance and replacements will cost about $3,500 per year. (Again, prices vary depending on a number of factors, including which area of the nation you live in.)

Your landlord won’t literally spend $3,500 each year. Some years, he’ll spend zero. Other years, however, he’ll spend $40,000 replacing multiple HVAC systems, water pipes, gutters and roof. The “rule-of-thumb” estimate is a rough guide that averages out that volatility.

Speaking of which…

#4: Vacancy

Tenants can’t live in the apartment or home while renovations are underfoot. At least once a decade (if not more often), the landlord needs to purposely keep the unit vacant to replace the carpet, repaint the rooms and take care of other maintenance issues.

In addition, remember that time you bounced early from the lease — in the middle of January, when people rarely move? Yep, that vacancy is pricey. Even if the landlord took one months’ rent as an early-termination fee, the landlord may have gone through two or three months of vacancy before the next tenant signed on the dotted line.

#5: Management

The landlord may need to conduct a dozen (or two dozen) showings before they find a new tenant. Then they need to meet the tenant for lease-signing, conduct a move-in inspection, answer questions like “How do I hook up cable?,” and later, process a move-out inspection, return the deposit, and coordinate with contractors for a final cleaning.

This level of management costs money. Property managers often charge one months’ rent for tenant placement (to compensate for all those showings), followed by 10 percent of the rent as an ongoing fee.

#6: Liability Insurance

Many landlords hold an “umbrella insurance” policy to cover liabilities. If a tenant tries to sue them, for example, they’ll need to tap into their insurance policy to avoid losing their home and all their assets to the legal proceedings. Which leads to the next point …

#7: Accounting and Legal

Business filings, bookkeeping, CPA fees, meetings with real-estate attorneys to review their leases and documents — this is all part of the overhead that comes with renting out a home or apartment.

Bottom Line

Chances are you don’t think about these expenses. You may compare the mortgage to the rent, notice that the rent is higher, and might assume that you’re getting overcharged.

But don’t worry. You’re actually getting a better deal than you realize. As a very general rule of thumb, about half of your rent covers the operating expenses described above. The other half can be used to cover the mortgage. Unless your rent is 150 percent of the mortgage or higher, there’s a good chance you’re getting an ultra-sweet deal.

(In fact, in many major cities across the nation, the landlord actually loses money each month. This is called a “negative cash flow” or “negatively geared” property.)

The next time you tender your rent check, remember: You’re paying (in part) for the freedom from needing to worry about fixing the HVAC or collecting quotes from contractors.

So don’t start feeling anxious or resentful when you see that your rent is higher than the mortgage. Relax and enjoy your home, your freedom, and your peace-of-mind.

*SF roof deck image taken from 1801 Wedemeyer, San Francisco, CA 94129.