Friday, October 20th, 2017

Follow Us

Deciding Between Buying and Renting? Here’s Some Advice

Should you buy or rent the home you're living in? It depends on a lot of factors, experts assert. It’s a difficult decision that most everyone has to make in his or her life: Should I rent or buy my place? People struggle to answer the question because there are lot of factors that come into play, including your income and where you’re deciding about living.

Ultimately, the decision can be made if you take into consideration a few, very important variables. According to industry experts, if you’re deciding between buying or renting, the most important thing to consider is what’s the cost differential between buying and renting the apartment or home you’re thinking about.

A general axiom among investors is that if the ratio of price-to-rate is under 20, it could be a prudent decision to buy instead of renting. On a more granular level, though, some places have historically logged higher ratios, while other regions in the country are typically lower. The contraction in the housing market has adversely affected the values of homes from Boston to Los Angeles, and it’s worth noting how hard the region you live in has been hit.

Next, potential homeowners should determine what the price-to-income ratio is. To get that figure, you simply take the median home price and divide by median household income. It’s exceedingly important to understand this ratio because if it comes out higher than historical norms in the region of the country you’re looking to buy in, it could indicate that prices could fall in value even more, hurting your investment.

Moreover, potential homebuyers should educate themselves about the area the home is located in. If prices have been steadily rising, it could be a good time to buy; on the other hand, if they’ve been falling, you may want to wait and see if the market has bottomed out.

It also matters how long you plan on staying in the home. If matters whether you think you’ll only be in the area for a little while or plan on staying there into your old age. To help out the would-be homeowners out there, here’s a list of the five most populous U.S. cities and some pertinent information about their housing markets.

1. New York City
Price-to-Rent Ratio
Current: 14.07
Long-Term Average: 9.42

2. Los Angeles, California
Price -to-Rent Ratio:
Current: 15.96
Long-Term Average: 12.57

3. Chicago, Illinois
Price -to-Rent Ratio:
Current: 15.23
Long-Term Average: 16.19

4. Houston, Texas
Price -to-Rent Ratio:
Current: 18.63
Long-Term Average: 13.34

5. Philadelphia, Pennsylvania
Price -to-Rent Ratio:
Current: 13.38
Long-Term Average: 9.94

This entry was posted in Investing, Lifestyles, Money Management, Personal Finance, Shopping. Bookmark the permalink.