Try This Formula
Check the price-to-rent ratio (or P/R ratio). This number gives you a rough idea whether homes in your area are fairly priced.
Find two similar houses in your area (or condos or apartments), one for sale and one for rent.
Divide the sale price of the one place by the annual rent for the other. The resulting number is the P/R ratio.
Sales Price $200,000 house for sale in a nice neighborhood.
Rental for similar house $1,000 per month (which works out to $12,000 per year).
Price to Rent P/R ratio 200,000 divided by 1200 is 16.7.
A rent ratio above 20 means that the monthly costs of ownership will exceed the cost of renting.
In Boom Times the P/R ratio far exceeded 20 in some cities.
The normal range nationwide supposedly is between 10 and 14 meaning it would cost between $1,200 and $1,600 to rent a $200,000 house.
So to Clarify:
Cost to Buy $300,000 Cost to Rent $12,000 P/R Ratio 25 RENT
Cost to Buy $300,000 Cost to Rent $20,000 P/R Ratio 15 BUY
