With property prices rising and interest rates still high, the math behind the decision to buy or rent has become more complex. We present a comparison model based on real market data.
Whether to buy or rent is one of the most common questions for anyone looking for a home. The answer depends on financial, personal and market variables that vary significantly from one city to another.
The Price-to-Rent ratio
The most widely used indicator internationally is the Price-to-Rent Ratio: the price of the property divided by the annual rent. In practice, this ratio ranges between 15 and 25 in major cities.
- Above 20: locally favorable to renting
- Between 15 and 20: break-even zone
- Below 15: mathematically favorable to buying
Variables that make a difference
Beyond the pure math, you must also consider: income stability, life plans over the next 5 years, the opportunity cost of the capital invested in the down payment, and transaction costs (transfer taxes, deed, brokerage fees).
What the data concludes
For those who have a down payment available and plan to stay in the property for more than 7 years, buying tends to be more advantageous in cities with historical appreciation above inflation. For those with mobility, or who invest the down payment money in assets yielding more than the financing rate, renting may be the smarter choice.
