Rent or Buy Ratios

[Dan D.]

So a lot of people looking for housing (our potential clients) might wonder if it's better to rent or to buy in their own personal case.  There are a couple of guidelines I've found on the internet that some may use which both revolve around price to rent index (or vice versa).

One says if annual rent is >9%, you should buy instead of rent.

Another one says if purchase price is 15 times or less the monthly rent, it's better to buy.

I've incorporated this into a table along with our own % rule metric investors look at.

I'm using purchase price of $100k for easy of figuring.  First four rows are using variations of the 1% rule going from 0.8% to 1.5%.

The dark orange group says if the rent % is greater than 9%, buy.  If it's 6% borderline.  If it's 3%, definitely rent.

The lighter orange is based off of the fifth column which is using the 15-to-1 ratio.  (Purchase price / annual rent).

In our area, most homes here fall into the "Buy" category for home purchasers.

So rents are high compared to asking price.  What does this say about the overall housing market for my area?