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Buying? Use the Price-to-rent ratio

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  • 29-08-2014 3:23pm
    #1
    superman28
    Registered Users Posts: 176 ✭✭


    There are alot of factors when buying a property, your family situtaion, job, location, affordability, etc etc.. but a fairly bog standard back of an envelope calculation to see if the property represents some kind of value is the Price-to-rent ratio. (I'm sure it's here already somewhere)

    Average list price / (Average Rent * 12)

    If your results are:
    • Price-to-rent ratio of 1 to 15 = much better to buy than rent
    • Price-to-rent ratio of 16 to 20 = typically better the rent than buy
    • Price-to-rent ratio of 21 or more = much better to rent than buy
    Just wanted to put it out there again as I can't make sense of the Bank Of Ireland calculator which doesnt actually tell me anything useful.

    https://personalbanking.bankofireland.com/borrow/mortgages/first-time-buyers/calculators/rent-vs-buy-calculator/


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    #2
    ballyharpat
    Registered Users Posts: 1,772 ✭✭✭ballyharpat


    In a suburban area, that formula is beneficial. I use it for investment property as for the p/e for stocks. However, if I want to purchase in the country, or perhaps a house in a high income/class area, where mainly it is owner occupiers, then I have to realise that I am paying a premium for that privilege, as many people do not want to pay high rent as they may be saving for a house or may have other things in their lives more important than the property they live in eg vacations. cars, hobbies.....just my take on it.


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