The price –to- rent ratio helps potential homebuyers, renters and investors locate ideal areas to move or invest into. This is determined by evaluating properties in a particular market and determining if houses there are fairly priced or more inflated than surrounding neighborhoods. Price – to -Rent ratios can help investors discover markets where homeownership is harder due to increased prices, where there will likely be tenants looking to rent. This formula can be beneficial to homebuyers as they determine properties in select markets that fit into their price range. If calculated correctly this formula can be used as a benchmark to determine whether properties in a select city are more financially beneficial to rent or to own.
- Find the median home value in areas of interest: The median home value is the price at which exactly half of homes on the market in a particular area fall below and exactly half fall above. This number changes yearly as a result of taxation and inflation. To find the median value in your area, conduct an Internet search of your city’s median home value and compare it against several other sources to ensure your price is accurate. Websites such as smartasset.com and Mashvisor are credible websites to search for this information.
- Find the median annual rent in areas of interest: The median annual rent is the price at which exactly half of rent prices fall below and above. This number can be found by visiting websites like the National Association of Realtors and entering the name of your city, or cities you plan to move into.
- Divide and assess: The price – to- rent ratio can be calculated by diving the median home value by the median annual rent.
Median home value + median annual rent
This number will typically be between 5 and 50. According to G.E Miller of 20 something finance, cities that range between: 5% and 15% are better to own than to rent, and are better suited for current or those looking to become homeowners. Those that fall between 16% and 20% are risky territory for buyers and may be better to rent. Select cities where the price-to-rent ratio is 21% and higher are typically viewed as better to rent than own and are ideal for investors.
While areas with price to rent ratios that are best suited for your financial needs may be hard to find, an experienced real estate professional can help guide you through the process of locating one. To find the areas with best price to own ratios in your neighborhood contact Rent It Network for always fast, always responsive and always professional service.