Comparing renting vs. buying

Another key factor to consider when deciding whether now’s the right time to buy a house is whether it makes more economic sense for you to rent or buy in the market where you live.

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.

Two houses- one says rent and one says buy

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.