| In the best of times the real estate market can be | | | | If the answer is below 20 then it makes more sense |
| very confusing, if not just plain overwhelming, and in | | | | to purchase, above 20 then renting may be the |
| today's crazy economy, it is even more mystifying. | | | | better option. The rent ratio varies significantly from |
| Heavily fluctuating house prices and interest rates are | | | | region to region depending on how well the local |
| prompting many to ask themselves whether it is | | | | market has weathered the recent economic storm. |
| better to rent or to purchase a home. There are | | | | Below are some examples from the 4th quarter of |
| many factors involved when making this decision. | | | | 2009, showing the highest, lowest and break-even |
| Considering the sense of pride and accomplishment | | | | ratios in the country: (A quick internet search for |
| that comes with having your name on the title of | | | | "rent ratios" will help you determine the situation in |
| your home, emotion is often an overriding element in | | | | your area) |
| the decision to purchase a home. Of course financial | | | | * Oakland, Calif. = 36.3 |
| responsibility/affordability is also a huge component in | | | | * Memphis, Tenn. = 20.2 |
| the process. So how do you know when renting is a | | | | * Pittsburgh, Pa. = 11.7 |
| better option than buying? | | | | This formula considers all aspects of buying vs. |
| Whether renting is better than buying depends on | | | | renting; however, the biggest factor may be how |
| many factors, including how fast prices are rising and | | | | long you plan to stay in your home. A recent |
| how long you plan to stay in your home. Currently, | | | | comparison done by the NY Times concluded that |
| house prices are at rock bottom and real estate | | | | buying a $172,000 dollar home vs. renting a home for |
| analysts predict a rise in prices will happen at a very | | | | $1,100/mnth will be beneficial only if you stay in the |
| slow pace. This means that buying a home as an | | | | home for 7 years or more, with a total savings of |
| investment is no longer the motivating factor it once | | | | $5,314, or $759/yr. |
| was. So does this mean renting is better? The | | | | If your motivation for buying a home is to have a |
| answer to this is entirely dependant on the region in | | | | place to call your own, and you are not overly |
| which you live. | | | | concerned with making a profit on the property in |
| To figure this out from a financial standpoint you can | | | | the short term, then making the purchase may be |
| use the Rent Ratio formula to determine which | | | | the right thing to do. If you consider buying a home |
| decision makes the most sense. The rent ratio is | | | | as strictly an investment, you may want to put your |
| calculated by dividing the purchase price of a home | | | | money elsewhere. |
| by 12 months of rent payments on a similar property. | | | | |