Rent + charges: the true rental cost over 10, 20 or 25 years

Rent + charges: why the true rental cost is often underestimated

When people wonder whether it’s better to buy or rent, they usually compare today’s mortgage payment with today’s rent. But the real trade‑off is not only about the current rent amount: it mainly depends on how that rent will evolve over time and on the charges you pay as a tenant.

In our simulator on buy-or-rent.net, one parameter is crucial to measure the true rental cost: annual_rent_increase (augmentation_annuelle_loyer), i.e. the yearly rent increase, typically linked to the French IRL index.

Over 10, 20 or 25 years, a 1‑point difference in this rate can add or remove tens of thousands of euros. Understanding this mechanism is essential before deciding whether to buy or rent.

1. What really makes up the cost of renting?

The cost of renting is not limited to the advertised base rent. To properly assess the true rental cost, you need to add several recurring items:

• Monthly base rent (e.g. €900)
• Monthly service charges (e.g. €150)
• Home insurance (e.g. €15–30/month)
• Waste collection tax (often passed on to the tenant via charges in France)
• Energy bills (heating, electricity, hot water), strongly impacted by the energy rating
• Annual rent increase (indexation via IRL or similar indices)

Unlike a homeowner, a tenant does not pay property tax, notary fees, major structural works, etc. But the tenant faces a major constraint: the automatic revaluation of rent, which tends to follow inflation in housing costs.

2. Annual rent increase: how it works

In France, most residential leases include an indexation clause based on the IRL (rental reference index). In practice, each year on the anniversary date, the landlord can revise the rent using:

New rent = Current rent × (New IRL / Reference IRL)

To keep things simple, our simulator uses an average annual percentage rate for rent increases, for example:

• 1.0% per year in a moderate scenario
• 2.0% per year in a scenario close to recent inflation
• 3.0% per year in a stressed scenario (high inflation, tight market)

This annual_rent_increase parameter is at the heart of any serious buy or rent comparison: it turns a “reasonable” rent today into a heavy expense over the long term.

3. Numerical example: rent + charges over 20 years

Let’s look at a couple renting a 2‑bedroom flat:

• Initial base rent: €900/month
• Service charges: €150/month
• Home insurance: €20/month
• Annual_rent_increase: 2%

Year 1:

• Annual rent: 900 × 12 = €10,800
• Annual charges (service charges + insurance, assumed constant): (150 + 20) × 12 = €2,040
• Total rental cost in year 1: €12,840

Year 10 (after 9 increases of 2%):

• Monthly rent ≈ 900 × (1.02)⁹ ≈ €1,095
• Annual rent ≈ €13,140
• Charges + insurance still ≈ €2,040
• Total rental cost in year 10 ≈ €15,180

Year 20 (after 19 increases of 2%):

• Monthly rent ≈ 900 × (1.02)¹⁹ ≈ €1,330
• Annual rent ≈ €15,960
• Charges + insurance ≈ €2,040
• Total rental cost in year 20 ≈ €18,000

Cumulative cost over 20 years (revaluing only rent, not charges):

• Sum of rents ≈ 900 × 12 × [(1.02)²⁰ − 1] / 0.02 ≈ 900 × 12 × 24.3 ≈ €262,440
• Sum of charges + insurance: 2,040 × 20 = €40,800
• Total rental cost over 20 years ≈ €303,000

Starting from a seemingly modest €900 rent, the household ends up paying more than €300,000 in rent + charges over 20 years, largely due to annual_rent_increase.

4. The impact of a 1% change in annual rent increase

Now let’s run the same example with different increase rates:

Scenario A: 1% per year

• Sum of rents over 20 years ≈ 900 × 12 × [(1.01)²⁰ − 1] / 0.01 ≈ 900 × 12 × 22 ≈ €237,600
• Charges + insurance: €40,800
• Total cost ≈ €278,400

Scenario B: 2% per year (baseline)

• Sum of rents ≈ €262,440
• Charges + insurance: €40,800
• Total cost ≈ €303,240

Scenario C: 3% per year

• Sum of rents ≈ 900 × 12 × [(1.03)²⁰ − 1] / 0.03 ≈ 900 × 12 × 26.9 ≈ €290,520
• Charges + insurance: €40,800
• Total cost ≈ €331,320

Difference between 1% and 3%: €331,320 − €278,400 = €52,920 over 20 years, solely due to the different pace of rent increases. This is exactly what the annual_rent_increase parameter helps you visualise in a serious buy or rent simulator.

5. Rent + charges vs mortgage payment: beware of first‑year illusions

Assume that buying a similar property would mean:

• Purchase price: €260,000
• Notary fees (resale property): 8% ≈ €20,800
• Down payment: €30,000
• Loan amount: €250,000
• Mortgage rate: 3.6%
• Borrower insurance rate: 0.30%
• Term: 25 years

The monthly mortgage payment (excluding insurance) is about €1,266. Insurance adds roughly €60–70/month, for a total around €1,330–1,350.

At the start, the tenant pays:

• Rent + service charges + home insurance: 900 + 150 + 20 = €1,070

Renting looks cheaper in year 1. But after 15–20 years, things change:

• Rent rises every year (annual_rent_increase)
• The mortgage payment stays fixed (no automatic indexation)
• The tenant builds no equity, while the owner does

This is where the buy or rent question becomes a long‑term calculation, with annual_rent_increase heavily influencing the outcome.

6. Inflation, rent indexation and the true rental cost

The IRL index is closely tied to inflation (excluding rents and tobacco). When inflation stays above 2% for a while, it’s common to see:

• Faster rent revaluations
• Higher service charges (energy, maintenance)
• Increases in tenant‑paid charges

For tenants, this means:

• Their housing purchasing power shrinks if wages don’t follow
• The true rental cost over 15–20 years can be far higher than a naive “rent × 12 × years” estimate

On buy-or-rent.net, the annual_rent_increase parameter lets you test different inflation and rental market scenarios to see how they affect your buy or rent decision.

7. Rent + charges and saving capacity: the other side of the equation

One advantage of renting is flexibility: no notary fees, no property tax, no major structural works. This can free up significant cash, provided you actually save and invest it.

Back to our couple:

• Owner’s mortgage payment: €1,350
• Tenant’s cost in year 1: €1,070
• Difference: €280/month

If the tenant invests this €280 every month at a 4% annual investment rate (e.g. diversified ETFs), after 20 years:

• Accumulated capital ≈ 280 × [((1 + 0.04/12)²⁴⁰ − 1) / (0.04/12)] ≈ ~€103,000

This capital can partially offset the fact that they did not build home equity. But if, in practice, the gap between rent + charges and the mortgage payment narrows over time due to annual_rent_increase, the tenant’s real saving capacity shrinks year after year.

8. When rent + charges overtake the mortgage payment

In many large cities, we already see cases where, after 10–15 years, rent + charges equal or exceed the mortgage payment that an owner would have paid for a comparable property bought years earlier.

Simplified example:

• Initial rent: €1,100 (charges included)
• Annual_rent_increase: 2.5%
• After 15 years: 1,100 × (1.025)¹⁵ ≈ €1,650

Meanwhile, a homeowner who bought at the start with a €1,400 monthly payment is still at €1,400, while the tenant now pays €1,650 for a similar home, with no equity built.

9. Limits of renting: uncertainty and renegotiation

Beyond the numbers, renting involves several uncertainties:

• Risk of the landlord ending the lease to sell
• Risk of a sharp rent increase when the lease is renewed or the flat is re‑let
• Difficulty projecting yourself in the same rental at a stable cost over 20–25 years, especially in tight markets

The annual_rent_increase parameter is only an average. In reality, your rent might stagnate for a few years and then jump when the lease changes. Running several scenarios (1%, 2%, 3%) helps you measure how sensitive your total rental cost is to these changes.

10. How to use annual_rent_increase in the simulator

On buy-or-rent.net, the annual_rent_increase setting lets you:

• Test a cautious scenario (1%/year) vs a realistic one (2%/year) vs a pessimistic one (3%/year)
• See how your true rental cost evolves year by year
• Compare that cost with buying scenarios (including mortgage rate, notary fees, property tax, insurance, renovation costs)
• Identify the year when renting becomes more expensive or less attractive than buying in your specific case

The goal is not to predict the future, but to quantify the impact of a steady rent increase over 10, 20 or 25 years on your buy or rent decision.

Conclusion: the true rental cost is a long‑term story

The “rent + charges” total often looks lighter than a mortgage payment in year 1. But once you factor in annual_rent_increase, inflation and time, the true rental cost can become very high, sometimes exceeding the cost of buying, with no asset at the end.

Does this mean buying is always better than renting? No, it depends entirely on your situation: job stability, life plans, savings, risk tolerance, investment alternatives, local market conditions, and more. This article provides general benchmarks and is not personalised financial advice.

To evaluate your own case and refine your buy or rent thinking, plug your actual rent, charges and annual_rent_increase assumptions into our simulator and compare them with realistic purchase scenarios.

Simulate your situation on buy-or-rent.net