http://www.azrentalhomes.com

http://betterblog.ning.com/profiles/blog s/buying-home-to-rent

If the price-to-rent ratio is 20, then a $500,000 house will only command $2083.33 per month in rent. The mortgage on a $500,000 house is going to be something like $2997.75 per month (30 years at 6%), plus $520.83 per month for property taxes (1.25% in my city), plus hundred per month in insurance and hundreds more in upkeep.

If you bought a property at a sane valuation 25 years ago, then you can continue to collect your rent and make a return on investment. But people who try to buy right now are paying so much that their return on investment might very well be negative for 30 years.

In those intervening 30 years, the renter’s stock portfolio will have grown so much that he could buy 10 houses in cash versus the homeowner who now has 1 house. (This is if the renter can be disciplined enough to save all the extra money he’d have by not buying a house.)

I don’t think anyone would expect that buying or renting is always better, but that on average, one will be better than the other for a given condition (the condition I provided was buying a home and staying in it for a long time, and that will usually, not always, be less expensive than renting).

As far as blanket statements go, if none are allowed, then we shouldn’t be discussing a rent vs. buy decision, because it will often depend on whether it is a renter/landlord market or a buyer/seller market. Which is to say “it depends”.

You assume that the landlord can get a rent which covers his expenses and gives him a profit.

This is true in some real estate markets and not so much in others. Blanket statements such as yours are of little utility when discussing something as general as “real estate.:

I have been a homeowner for the last 12 years, and there is no question maintenance is a neverending expense. But when I was renting, rent increases were a way of life. And in California, where I live, property taxes don’t increase unless you trade up.

You two guys (Eagle and Dave) ignore the fact that landlords add a profit margin that will exceed any cost savings, if there are any.

The volatility of ownership costs, in fact, is one of the reasons why a renter can predict his monthly living expenses with more accuracy than can an owner.

Not to mention that this calculation discounts the vale of your time with regards to maintenance costs.

Buying is only more expensive than renting if you are going to swap homes regularly, like you can easily do when renting. If you are actually going to own a home for 30 years, vs. renting for the same time, I don’t see how renting could be less expensive, as it will rise with inflation, while the price of owning is fixed. All of the costs of owning a home (capital, maintenance, taxes) are factored into the cost of renting, but rent also includes landlord profit.

Also, I’m not really sure how your logic applies in the Washington, DC case. Let’s assume Baker is paying $4000/month on his mortgage. I’m pretty sure he could rent something fairly comparable for less. http://www.rentals.com/Home-Rentals/Disp lay.aspx?ListingNumber=945513.

Trust me, while I bought my house with the intent to never move, I worry that a whole host of things could happen to devalue it. I realize that mortgage/rent ratios can give a crude measure of how out of whack prices are, but sometimes they are not always comparable. Do I worry that the glut of condos in DC will eventually bring down rents? Yes. Do I think that housing prices will in turn be affected? Maybe, but the neighborhoods with condos are not really in the same market as my house, so I worry about it on a discounted macro level rather than at the micro level.

Anyway, your Florida example is a slam dunk example (especially one you add in the mortgage interest deduction), but in more ‘normal’ cases, I’m not really sure how can know what a reasonable monthly mortgage-to rent ratio is.