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Price-to-Rent Ratio Explanation Expanded
I received quite a few inquiries to further elaborate on my Price-to-Rent Ratio post, so here goes:
Even though we can do a quick calculation of the Price-to-Rent Ratio: what does that number really mean? Boiled down – just remember that if the number is lower than 20% it is in the best interest of the renter to at least consider buying a home and looking deeper into their specific situation.
To do so means understanding how to calculate the actual Net Monthly Benefit of owning a home. Owning a home over time has proved to be a strong contributor to building wealth – here’s why:
First and foremost, a home is a place to live. Over time, it’s also proved to be the single largest contributor to building wealth but still, that’s the gravy. One has to be prepared to make the payments that they sign up for as things like appreciation aren’t realized until the property is sold. However, other benefits such as tax deductions and of course, the fact that you’re paying your own mortgage rather than your landlord’s is the best thing of all.
Below is a portion of a worksheet that I worked up showing the net monthly benefit of ownership ... more
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