You have accepted a job contract that will move you and your family for one to two years. Now you are faced with the daunting decision, buy or rent. It is the foundation of “The American Dream” to want to own your home. To plant your roots and flourish, this was true of our parent’s generation. Not so much for us today. It is more common to make a career choice that will move you and your family for a short time to a new city. Taking this into consideration, buying a home isn’t always to answer. Different markets “break-even” on their real estate investments at different rates.
To know if your destination market is a renters or buyers market you will need to do a little research. Sure you can do a Google search and get an answer that most likely is outdated, or you can do your own math. After you have decided on the neighborhood you would like to live in, find homes for sale and for rent that are the size you want. Once you have these numbers simply apply them to the price-to-rent ratio.
The price-to-rent ratio is a calculation that compares median home prices and median rent is a particular market. Simply divide the median house price by the median annual rent to generate a ratio…As a general rule of thumb, consumers should consider buying when the ratio is under 15 and rent when it is above 20. Markets with a high price/rent ratio usually do not offer as good an investment opportunity. To read more please visit http://www.investopedia.com/financial-edge/0511/8-must-have-numbers-for-evaluating-a-real-estate-investment.aspx
Having stated all of this there is one major item to consider. If after having done the math, you are leaning towards the purchase of a home, you need to consider the risk of not being able to sale the home. At the end of the day nobody has a magic ball in which to look into the future to make these decisions by, you have to go with your gut. I do think that using the price-to-rent ratio gives you the best risk assessment for your market.