What are home rental rates compared to house values?

I am trying to establish a fair rental value for a home in relation to it's total property value. Is there any percentage rule of thumb?

Rental rates versus home values actually have significantly differed by geographical location as well as by time period in the United States. Buying has typically been a better value in the past 50 years, but in many areas (especially urban areas) home values have now nearly caught up with rental rates. Some parts of San Francisco and Miami are currently examples of this phenomenon – home prices have risen so much, it makes more sense to rent than to buy.

A good general rule of thumb is as follows: Figure out what a home buyer's total monthly cost would be (monthly mortgage + insurance + taxes + repairs). A good guess as to what the property might rent for would be this figure times 1.15. (The extra premium is priced into renting because renters are not unable or unwilling to take on the risk of buying.)

For your particular area, the best way to know what prices the market will bear for either renting or buying is to check with local realtors, or do research yourself using buyowner and other similar websites.

To figure out the monthly mortgage payment, assume a 30 year mortgage and a reasonable interest rate. You can use any of the many on-line mortgage calculators.