jeudi 28 janvier 2010

Rule for buying vs renting

"How can you tell if buying is a good idea or a bad one? Pelletiere invokes a rule of thumb: If your house costs more than 15 times the annual average rent for a similar place in your area, there's an excellent chance that your home is overpriced.

Here's an example to see how to figure out if your city flunks the affordability test:

In San Jose, the average cost of renting a two-bedroom house or apartment is around $1,300 a month. That's $15,600 a year you'll be spending on rent.

Buying a similar place will cost you easily $500,000 -- 32 times what you're likely to spend on rent a year. "That's an indication that the community has been subject to the speculative price bubble," says Pelletiere. Using the affordability rule, that half-million-dollar San Jose condo is really worth more like $234,000 ($15,600 x 15)."

(From this article.)

Our rent: $1100 x 12 = $13,200 x 15 = $198,000.

Can we find a home in our neighbourhood for that price? I think NOT. Better to keep renting! :)

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