The Importance of Rental Market Prices to Purchases Prices

The Importance of Rental Market Prices to Purchases Prices

If we are going to decide between renting a house or flipping one, we only make the right decision when we consider the appropriate guidelines. These guidelines include the aspect of home prices, mortgage rates and rental rates. By considering the above aspects, you will be able to understand if it’s more sensible to flip or rent a house on a long-term basis, economically.

We are dealing with prices, which automatically means doing math. And it is very important that you do the math correctly to avoid financial waste in the end. This is where the rent ratio comes in. A certain property will always have a fundamental price, and that fundamental price will be divided by the rental price. The product is the rental ratio. And according to experts, the tipping point of rent ratio is 15-20. The higher the ratio, the more it would require a spike in housing prices in the coming years to justify the price you are paying today. For example, in a market where a 2-bedroom house costs $250,000 and the annual rent for a similar home is $12,000 ($1,000 per month), then the ratio is about 21. It would make sense to consider flipping the property.

One more thing that should also be taken into consideration is our current financial stand. Buying a home always comes with a financial impact, especially when we are talking about mortgage rates, property taxes and homeowner’s association fees. If you are compromising future plans when buying a home, then it’s best to set aside rental ownership for the time being.

We will never know when high levels of economic uncertainty hit us. It is just prudent to make lifestyle changes that would suit your financial status. Be knowledgeable about the proper guidelines when deciding whether to rent a house or flip it. The financial income that comes with renting is always assured if you know how to calculate certain elements together with rental market prices and purchase prices.