From there, you can start stacking additional costs and savings on both sides of the argument. I've done that math, too, and found that, at least in my area, that only makes buying look even worse.
That said, in a lot of places (e.g., small towns and suburbs), it's slim pickings for apartments that aren't basically bachelor pads or eyesore cookie cutter developments. If I didn't live in a major metro area, I'd probably be buying, too.
For example, a house worth $500,000, with a 5% ROA, would need to net $25,000 a year. Assuming expenses are 1% of the value, you would need to charge $2,500 monthly rent, to get a 5% ROA.
The question is then, how does that ROA compare to other options? That answer to that question determines whether the house is overvalued.
What is also nutty, a mortgage on an investment property is almost always a bad deal. Just to be clear. If you were to use a mortgage at 500k, 20% down, this would be the math: [1]. To break even you would need to charge 3k.
Long story short, it is hard to find a renter of a 500k house for 3,300. In SF, 500k wouldn't buy a one bedroom. In the suburbs, 3k a month renter is a hard find.
What matters are what returns you can get with the money from the mortgage.(Opportunity cost)
Ex. You own an investment property you bought for 200k, it returns 10% per year. The only available investments to you are the stock market which returns 3%. Mortgages are 5% should you get a mortgage? Obviously no.
Same situation but the stock markets are returning 15% per annum. Obviously yes.
You make money 2 ways with a property: income and capital appreciation.
However, intrinsic value and market value are frequently out of whack. You can see this in the stock market: stock prices change within fractions of a second, but nobody should believe that the company's intrinsic value is actually changing second-by-second.
Calling an asset "overvalued" is a judgement call. Same with calling an asset undervalued. You have to do your own analysis to make that interpretation. And when you see something that's undervalued significantly, you buy that asset!
Also I think comparing to the stock market is a bit disingenuous as the revenue stream from renting is fluctuating a lot less (though the market value of your house might), because leases are usually at least year-long.
IMHO, it’s genuinely difficult to establish the underlying value of a property beyond comparing it to similar recent transactions (which doesn’t answer the original question).
It’s possible you meant looking at rents in the area as a baseline of how “productive” my SFR is.
If the interest rate for a 30 yr loan is 1% vs 10% that will change the appropriate price to rent ratio.