-This is a transcript from Go Gaddis Radio to listen to the episode click here-> https://on.soundcloud.com/UFeaw
Welcome back to Go Gaddis Real Estate Radio right here on a AM nine 20. The answer. I'm Cleve Gaddis. I'm your host. In this segment, we're gonna discuss price to rent ratios. What in the heck is a price to rent ratio and how? Would if you are a real estate investor or just a purchaser, an owner occupant of a home, how would understanding the price to rent ratio in an area help you make better decisions?
And are there questions you as a buyer should ask a builder on a pre-sale new construction home? Again, I'm Cleve Gaddis. You're listening to Go Gaddis Real Estate Radio right here on AM nine 20. Our goal is to help listeners go from real estate novices to experts. So home selling and buying can be done with total confidence and without all the worry that is so typical with life's biggest investments.
We don't want you to learn anything at closing or after that you should have learned before, and we want to connect with you. We love building relationships with our listeners and it's easy. Go to Go gaddis radio.com. Go G A D D I S radio.com. You can ask questions, you can make comments, you can push back or challenge anything we say or anything I say I should say.
You can share your ideas with us. You can request your neighborhood be featured in our neighborhood spotlight and you can subscribe to our podcast. We're available on every major podcasting platform and we would love for you to be a subscriber. Have you been worried about whether or not it made more sense for you to rent a home or buy a home?
Are you, for many people still on the fence trying to determine which is better, which is more financially sound, could be that there's an easy, well, nothing, nothing about finances as easy, but it could be that there's a simple way to understand in today's market or any market for that matter, whether it makes more sense to buy a home or.
To rent a home. We received a listener question from Harry in Woodstock. Like many, we are renters and still trying to decide if it is cheaper to rent or own our own home. Do you have a formula or any guidance to share? And Harry, my answer is yes, I do. If you want to determine if it's better to buy a rent, then you need to understand the price to rent ratio.
In most cases, they use a price to rent ratio for the entire market, and you can use a price to rent ratio for a particular home if you want to. The price to rent ratio of. Home prices. It's the ratio of home prices to annualized rent in a given location. This ratio is used as a, as a benchmark, if you will, for estimating whether it's cheaper to rent or to own a property.
The price to rent ratio is used as an indicator for whether housing markets are fairly valued or in a bubble. Let me give you a little example, and this would be. A more local example. Let's say you had a home that rented for $2,500 per month, and let's say that home sold for $300,000. Now, I'm gonna be honest with you, I don't think you can find a home right now in metro Atlanta for $300,000 that you can rent for $2,500 a month.
I'm trying to make the math easy. 300,000, probably rent closer to 2000 or 2100 per month, but you take the annualized rent, 2,500 per month times 12 months. That's $30,000 in annual rent. Now, let's say that the home is, the price of, the value of the home is 300,000. So if you take 300,000 and you divide it by 30,000, that number is 10.
So in this particular case, for that particular home, the price to rent ratio is 10. Now what does that mean for you? Well, any price to rent ratio between one and 15 generally indicates it is much, much buyer. Much, much better to buy than to rent. Now, a price to rent ratio of 16 to 20 or even higher indicates it's typically better than rent than to buy.
And if the price to rent ratio is 21 or higher, it says you better rent instead of buy. The price to rent ratio, historically is used as an indicator for whether housing markets are fairly valued or in a bubble. The. As many of you'll remember the DMA dramatic increase in the price to rent ratio leading up to the 2008 2009 high housing market crash was really, with hindsight, a, a really a red flag for the housing bubble.
Rents were staying the same, but the values and the sales prices of homes were climbing significantly. The price to rent ratio, as I have mentioned several times, shows whether buying a renting would be best for a particular property or in a particular market. You know, while the price to rent ratio compares the economics of buying versus renting, it says really nothing about the overall affordability of buying or renting in a given market.
Cities. Where both renting and buying are very expensive, such as San Francisco or New York could have the same price to rent ratio as a small Midwestern town where both homes and rents are relatively cheap. Let's give one more example. Let's say the median home val value in the US was 291,300, and the median home rent for that home was $1,463.
These are numbers based on. Some national averages. The price to rent ratio would be 16.6 or two hundred thirty one thousand two hundred ninety one thousand three hundred divided by 1463 times 12. Price to rent ratios can be calculated based on figures for a specific city or a neighborhood or a zip code or whatever.
Price to rent ratio. Take your monthly rent, multiply it by 12, then take the price of the home and divide it by the annual rent. That'll give you the price to rent ratio, anything from one to 15. Hey, you should buy anything 16 to 20. You should rent anything over 20. You dang sure should rent. Can you buy homes in Metro Atlanta where the price to rent ratio is 15 or less?
The answer is absolutely. If you want somebody to help you look for something like that, just reach out to Modern Traditions Realty Group at 7 7 0 4 9 7 0 0 0 0. Harry, thanks for submitting such a great question. We have coming up on Saturday, October the 26th and Wednesday, October the 30th. Uh, a free investing webinar called The Six Keys to Success in Real Estate Investing, Saturday, August the 26th from 10 to 11:00 AM right after the show, and Wednesday, August the 30th, beginning at 7:00 PM seven to 8:00 PM The four we will be discussing among many other subjects, the four types of return you earn.
On real estate investments. It's not just one. There's four. How to invest through your I R A, how to put some of that money to a little bit better work, better use, how to avoid taxes when you sell your investment property. And then what is the ideal investment property for Metro Atlanta? This segment of the show is brought to you by the law firm of o' Kelly and Sohan o' Kelly and Sohan is a full service law firm with 26 offices throughout Metro Atlanta.
They specialize in residential real estate closings, uh, including home purchases, refinance, closings, corporate relocation, and real estate. Contract review and title insurance matters. They can be reached by calling 7 7 0 4 9 7 0 0 0 0 7 7 0 4 9 oh. Excuse me, I just gave you my number. I do that every once in a while.
7 7 0 4 9 7 1 8 8 0. One more time, o' Kelly and Sohan. Phone number (770) 497-1880. Are you looking to buy a pre-construction, new construction home, but feeling overwhelmed, wanting to make sure that you don't make any mistakes as you start to contract with the builder? Believe it or not, there are questions you can ask the builder to be confident in your purchase and structuring of the contract for a pre-sale new construction home, Cindy in Cumming.
Wrote in saying we are looking to purchase a presale new construction home and wanna make sure we're reviewing everything we should before signing on the dotted line. What should we be aware of? I wish, Cindy, that it was easy for me to answer that question on the air. There's a lot of details, but I will tell you this.
If you'll go to go Gaddis radio.com, click on contact us and say, send me the checklist to purchase a priest. Sale, new construction home. Again, checklist, pre-sale, new construction home. The categories of the questions are, number one, are you familiar with the builder? And we have four questions on this checklist that you would want a want to ask about the builder.
Then you are, you wanna be familiar with the property in the house to be built and we have. Six more questions that deal just with your familiarity with the property and the house to be built. You also want to be familiar with the neighborhood, and I know I'm stating the obvious here, but it's so easy to forget.
We've got five specific questions about HOAs and the size and the quality and the location and the date of the amenities, all kinds of things that you need to remember to ask the builder. We've got a checklist of things you need to remember when you make the offer. In fact, there are, I believe, seven of those.
And it's, have you filled out everything? Have you deleted or marked NA in certain areas? Have you hand have all handwritten insertions been. Time, uh, recorded with time and initialed. Then you've got special conditions. We've got another seven or eight special conditions on the property, actually another 10 or 12 special conditions on the property or, or special conditions in the loan.
Have I allowed myself enough time to apply for financing? Am I comfortable with the terms of the loan I've included in the contract? Again, if you want this checklist, the pre-sale contract checklist, go to go gettis. Realestate Radio or go Gaddis Radio, G O G A D D I S radio.com. Click on contact us. Just say, Hey, send me the pre-construction, the pre-sale builder contract checklist and we'll be happy to send it to you.
If you looking to sell your home in metro Atlanta anytime in the next six months, we believe we can sell your home for $28,000 more than your neighbor sold his or her home for. In many cases, in fact, I talk to sellers all the time who said, man, when I first heard you say that, um, I didn't believe it was true.
But now that you've sold my home, I'm a believer and we have two little secret weapons. Two, not little secret weapons, two significant secret weapons that we bring to bear. Uh, as we help somebody sell their home for $28,000 more than their neighbor, number one, it is a proprietary way of pricing a home called a customized maximum value plan.
It's like an appraisal on steroids, and number two is a rehab and refresh or an r and r budget. We rehab and refresh while you relax and rehab up to $15,000. And, and we collect that money back at closing and we take care of everything. And in many cases we don't. We don't not only fetch 28,000 more, but 38 or $48,000 more.
We've gotta take a quick break when we come back in our neighborhood Spotlight Beaufort Village in Gwinnett County. Also, what are some staging trends for luxury homes? And think pink. What are five ways to add a rosy glow to your bedroom? We've got those subjects and more we'll be back.