Definition of 'Price-to-Rent Ratio'
A mathematical calculation utilized in the Trulia Rent Vs. Buy Index that compares the totals costs of homeownership with the total cost of renting a similar property. The total costs of homeownership considered by the ratio include:
Investopedia explains 'Price-to-Rent Ratio'
The price-to-rent ratio provides a comparison between owning and renting properties in certain cities. The ratio uses the average list price with average yearly rent on two-bedroom apartments, condos and townhomes that are listed on www.trulia.com, a real estate search website. The price-to-rent ratio is calculated by dividing the average list price by the average yearly rent price, as follows:
Price-to-rent ratio = Average list price / (Average Rent * 12)
Trulia establishes thresholds for the ratios as follows: