How to use the price-to-rent ratio calculator
- Enter the home price.
- Enter the monthly rent for a comparable home in the same area.
- Open More options to enter any ratio you want to test.
- Read the price-to-rent ratio, the gross rent yield and the years of rent that equal the price.
Formula
Yearly rent = monthly rent x 12
Price-to-rent ratio = home price / yearly rent
Gross rent yield = yearly rent / home price x 100
Price at a chosen ratio = yearly rent x ratio
The ratio is the number of years of rent it takes to equal the purchase price. The rent yield is its inverse, shown as a percent.
A $420,000 home that rents for $2,100
Yearly rent is 2,100 x 12 = $25,200. The ratio is 420,000 / 25,200 = 16.67, so it would take 16.67 years of rent to equal the price. The gross rent yield is 25,200 / 420,000 = 6.00%.
If you want to test a ratio of 20, the same rent implies a price of 25,200 x 20 = $504,000. And the same price at a ratio of 20 implies a monthly rent of 420,000 / 20 / 12 = $1,750.
A quick comparison, not a decision
A high ratio means homes cost a lot compared with what they rent for, and a low ratio means the opposite. People use the ratio to compare cities, neighborhoods or years. It cannot say whether you should buy, because it leaves out the loan rate, property tax, insurance, upkeep, how long you will stay and how prices and rents change. It also depends entirely on the rent you pick for a comparable home.
Pick comparables carefully
Use a rental home that matches the one you would buy in size, age, condition and location. A smaller or older rental makes the ratio look high. For a full rent versus buy comparison over a number of years use the Rent vs Buy Calculator. To look at a property as an investor use the Rental Yield Calculator and the Cap Rate Calculator.
Assumptions and limits
- The rent is what a comparable home would rent for each month.
- Price and rent are in the same currency and for the same type of home.
- No costs of owning or renting are included.
- Nothing is uploaded. Calculations run in your browser.
Frequently asked questions
What is a good price-to-rent ratio?
There is no single number. It differs by city and changes over time. This page gives the ratio and the yield but does not label them, because the right comparison is with other places and with the full cost of owning.
How is it different from the 1 percent rule?
The 1 percent rule compares monthly rent with the price as a percent. The price-to-rent ratio compares the price with a year of rent. They describe the same relationship in different forms.
Is the rent yield the same as a cap rate?
No. The gross rent yield uses all rent before costs. A cap rate uses net operating income, after costs such as tax, insurance and upkeep, so it is lower than the gross yield.
Should I use the rent I would charge?
For an investment, use what the property would rent for. For a buy or rent decision, use the rent for a home like the one you would buy, which is what you would pay as a renter.