Price-to-rent ratio
The purchase price divided by the annual rent. Similar to GRM. Used to compare buying versus renting in a market at a broad level.
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Part 1 of 4
Why a seller cares
The price-to-rent ratio compares what a home costs to what it rents for, and investors use it to decide whether your market is a buying market. In a high-ratio market, the buyer for your rental is more likely to be a family than an investor.
Part 2 of 4
A simple example
Your home would sell for $300,000 and rent for $1,700 a month, or $20,400 a year. The ratio is about 15.
| The ratio | What it tends to mean |
|---|---|
| Under 12 | Investors compete for houses; rent covers the price quickly |
| About 15 | The middle; investors are choosy |
| Over 20 | Families buy, investors mostly do not |
The ratio says who your buyers will be. A high one means listing to families, not to investors.
Part 3 of 4
What people get wrong
That a high ratio means the home is overpriced. It means rents are low relative to prices, which is true of most nice neighborhoods.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
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