Comparing renting vs. buying
The price to rent ratio can help you compare the total costs of owning a home versus total costs of renting a similar property. The cost comparison typically considers total rental costs to include rent and renter’s insurance, while total ownership costs include mortgage payments, real estate taxes, closing costs, homeowner’s insurance, and any homeowners’ association (HOA) dues. Ownership costs also take into account favourable tax benefits for homeowners, such as a tax deduction for mortgage interest.
How to calculate the price to rent ratio
You can calculate the price to rent ratio yourself by comparing mean or median home prices in your area to average rental prices for comparable properties.
If you could rent a comparable home for much less than the cost to buy, it may not make sense to sink your cash into real estate. Instead, you may be better off renting and investing the difference. However, if you can buy a home for much less than it would take you to rent a similar property, this is usually a good indicator that it makes financial sense to purchase.