Price-to-Rent Ratio
The ratio of median home price to median annual rent in a market. A ratio under 15 generally favors buying, while over 20 favors renting. Investors use this to identify markets where rental properties may be more profitable.
Key Points
- Understanding price-to-rent ratio is essential for evaluating real estate investments
- This metric helps investors compare opportunities objectively
- Our Free Snapshot tool automatically calculates relevant metrics for any property
Related Terms
Gross Rent Multiplier (GRM)
A quick valuation metric calculated by dividing the property price by its gross annual rental income. GRM = Property Price / Annual Gross Rent. Lower GRMs generally indicate better value, though this metric ignores operating expenses.
Cap Rate
Capitalization rate is the ratio of a property's net operating income (NOI) to its current market value or purchase price. It's used to estimate the potential return on an investment property, independent of financing. Formula: Cap Rate = NOI / Property Value × 100.
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