4. What is the home price to home rent cost ratio?
A good rule of thumb when it comes to deciding whether to rent or buy is to use the price-to-rent ratio. Divide the home value by the annual rent amount. If you get a number that’s lower than 20, buying might be your best option. If you get a number higher than 20, you may want to stick with renting. Here’s an example when comparing a home valued at $200,000 or a condo that’s renting for $1,200 a month.
$1,200 × 12 = $14,400 (the annual rent amount)
$200,000 ÷ $14,400 = 13.8
In this instance, buying a home is probably the best option. Of course, you still need to take into account lots of personal circumstances to decide what’s best for you and your situation.