Is it Better to Buy or Rent??
DYI’s Price to Rent Ratio
Guide Post!
The price-to-rent ratio is a metric used to assess whether it's more financially beneficial to buy or rent a property. It's calculated by dividing the median home price by the median annual rent in a specific area. A lower ratio generally indicates that buying is more affordable, while a higher ratio suggests renting might be more cost-effective.
Calculation:
Price-to-Rent Ratio = Median Home Price / Median Annual Rent
Interpretation:
Super Low Ratio (e.g., below 5) Once in a lifetime purchase with costs significantly lower than renting (the Great Recession [2010 to 2012 or 2020 -2021 COVID scam])
Ultra Low Ratio (e.g., below 10) Buying a home is definitely more affordable.
Low Ratio (e.g., below 15): Buying a home is likely more affordable than renting.
Moderate Ratio (e.g., 16-20): The decision to buy or rent is less clear-cut and may depend on individual circumstances.
High Ratio (e.g., above 21): Renting is generally more cost-effective.
Ultra High Ratio (e.g. above 25): Selling and renting becomes a very viable option.
Super High Ratio (e.g. above 30) Selling is a given and renting is the obvious choice.
Mania High Ratio (e.g. above 40) Sell pocket the massive gain and rent a nice place with lots of money left over!
Real Estate Investors Rental Properties Gross (before expenses) Yields at Purchase Price to Possible Rents:
Gross Returns:
5 to 1 = 20%
10 to 1 = 10%
15 to 1 = 6.66%
20 to 1 = 5.00%
25 to 1 = 4.00%
30 to 1 = 3.33%
40 to 1 = 2.50%
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