Price-to-Rent Ratio

AAA

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:

  • Mortgage principal and interest

  • Property taxes

  • Insurance

  • Closing costs

  • HOA dues where appropriate

  • Mortgage insurance where appropriate

Tax advantages for owning (such as the mortgage interest deduction) and the total costs of renting, including the actual rent and renter's insurance, are also considered in the total cost of renting.

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:

  • Price-to-rent ratio of 1 to 15 = much better to buy than rent


  • Price-to-rent ratio of 16 to 20 = typically better the rent than buy


  • Price-to-rent ratio of 21 or more = much better to rent than buy
RELATED TERMS
  1. Real Estate

    Land plus anything on it, including buildings and natural resources.
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Homeowners Association Fee - HOA ...

    An amount of money that must be paid monthly by owners of certain ...
  4. Homeowner's Association - HOA

    An organization in a subdivision, planned community or condominium ...
  5. Curb Appeal

    The general attractiveness of a house or other piece of property ...
  6. Mortgage Insurance

    An insurance policy that protects a mortgage lender or title ...
RELATED FAQS
  1. What kinds of real estate transactions use triple net (NNN) leases?

    A net-net-net lease, also known as a triple net or NNN lease, is a type of real estate lease that requires the tenant to ... Read Full Answer >>
  2. What are the three "nets" of an NNN lease?

    A triple net (NNN) lease is a type of real estate lease in which the tenant is responsible for paying the building's property ... Read Full Answer >>
  3. What are the differences between single, double and triple-net leases?

    A net lease is a real estate lease in which the tenant pays, on top of his rent, one or more of the following expenses: property ... Read Full Answer >>
  4. Can you ask your landlord to remove a waiver of subrogation clause from your lease?

    You can ask your landlord to remove a waiver of subrogation clause, but you will both need to agree to its removal or the ... Read Full Answer >>
  5. Do landlords set up escrow accounts for their tenants' security deposits?

    Landlords must set up escrow accounts to hold tenants' security deposits if the accounts are required by the laws of the ... Read Full Answer >>
  6. Is a waiver of subrogation clause better for a tenant or a landlord?

    A waiver of subrogation clause is good for both a tenant and a landlord. A waiver of subrogation is a two-way agreement in ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    4 Steps To Attaining A Mortgage

    It starts with knowing your choices as well as your price range. We show you how to get there.
  2. Home & Auto

    Top Tips For First-Time Home Buyers

    Follow this step-by-step guide to make your homeownership dreams a reality.
  3. Home & Auto

    Selling Your House? Avoid These Mistakes

    Don't put the sale of your home at risk by committing one of these dirty deeds.
  4. Personal Finance

    To Rent Or Buy? There's More To It Than Money

    Your lifestyle, level of commitment and the trade-offs need to be carefully weighed.
  5. Home & Auto

    To Rent Or Buy? The Financial Issues

    Thinking of buying a home? We look at the initial and ongoing costs, as well as the so-called benefits.
  6. Home & Auto

    6 Tips For Selling Your Home Fast

    Find out what you can do to stand out from the competition and make your home an easy sell.
  7. Home & Auto

    Real Estate Deal-Breakers That Shouldn't Be

    Some things can get in the way of owning your dream home, but they don't have to.
  8. Budgeting

    Mortgages: How Much Can You Afford?

    Answering this means number-crunching as well as factoring in other considerations and expenses.
  9. Home & Auto

    An Introduction To Buying A Condominium

    This real estate investment provides unique advantages - and challenges.
  10. Home & Auto

    6 Questions To Ask Before You Refinance

    Refinancing your mortgage can be a quick way to save on payments, but it's not for everyone.

You May Also Like

Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!