I’m not the first to broach the subject of buying versus renting a home, but I was surprised by what I learned from the February issue of Best Life. On page 30, in an article titled “Rental Case”, they discuss evaluating the home rental market in a way similar to stocks. They make the comparison using a ratio of home price to market rent, and compare that to a stock’s price to earnings ratios.

The home price to market ratio is just that - the home price divided by the annual rental rate. If you were to rent your $100,000 home for $1,000 per month, for example, the ratio would be about 8.33.

What they found is eye-opening - that the current national average price to rent ratio is an exceptionally high 18:1, about the equivalent of $200,000 homes being rented for $920 per month. That ratio is much higher than in the 80s, when the real estate market tanked - the Reagan era saw a ratio of about 14:1.

The funny thing about buying a home is that everyone says it is the best investment you could possibly make. (And by everyone, I mean the conventional wisdom and a large number of the financial planning crowd.)

In today’s market, however, the down payment, financial commitment, and rising interest rates could mean a mortgage that is triple what rent would be on the same street.

In my opinion - the most important thing to consider is your “goes ins” versus your “goes outs”. I try to stress this point a lot, and for good reason: it was how I got myself out of debt.

It might be nice to build equity in a home, using all of your earnings to build that equity over thirty years has an opportunity cost - and it could be financial freedom.

While it is comforting to think that thirty years of such sacrifice will leave you with a home, if not buying can save you $1,000 per month or more - and let you take advantage of the benefits of compound interest - is it really such a bad idea?