BUY VS RENT?

We as Realtors, are often quick to answer Buy, but often many times the answer is much more complicated than that. In fact, we aren't always the best people to ask. The buyer's tax accountant or financial planner would be best qualified to help any buyer with such a question. But when we are asked....

Here's a quick calculation you can do before buying. This information comes from an article in the July 16, 2008 issue of Money Magazine, where the author, Amanda Gengler, was interviewing several experts on the real estate market. This suggestion was offered by economist Patrick Newport. Start with the price of home your buyer is considering. Next, call around to see what it would cost to rent such a property, in the same neighborhood. Property management firms are good sources of information.

Now compared the cost of the home to what the annual rent would be. For example, if a home's cost was $270,000 and your annual rental expense was $18,000, than you would have a cost-to-rent ratio of 15. Generally, buying starts to be option when the P/R ratio is around 15 or lower. (the current national average 12.5 in the middle of summer.) As you see the P/R ratio, in your market, starts to fall, you should see a corresponding increase in sales.

Be aware, that 15 is just a ball park number and will vary in different markets. For a more accurate number, see how your market's current P/R stacks up to the market P/R, you had at the beginning of the decade. You'll most likely need to contact property management companies or rental agencies to get these numbers.

Bottom line, none of us have crystal ball and the final decision should still be the buyers.

For more information about housing in your area email bill.swanson@cbshome.com.