Thread: Buying a House?
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Old 07-01-2019, 04:50 AM   #6
Chris Rice
 
Join Date: Dec 2017
Location: London Uk, but originally from Scotland
Default Re: Buying a House?

Looking into it a bit more, if we assume that purchase price should have some relationship to rental value then we can use tools like price to rent ratio to help.

Price to Rent ratio is calculated by Purchase Price divided by Annual Rental cost.

A price-to-rent ratio of 1 to 15 indicates it is much better to buy than rent; a price-to-rent ratio of 16 to 20 indicates it is typically better to rent than buy, and a price-to-rent ratio of 21 or more indicates it is much better to rent than buy.

If your guys are renting at £320 per month, you could set the ratio at 15 (the top end of the "better to buy" scale). That's £3,840 annual rental cost. Multiplied by 15 gives you a purchase price of £57,600.

It's a starting point anyway.
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