Rent-to-Price Ratio: What It Measures and How to Use It

Rent-to-price ratio is the monthly rent expressed as a percentage of the purchase price. It is the quickest way to compare how much income a dollar of property buys in one market versus another.

The formula

Rent-to-price ratio = (Monthly rent / Purchase price) x 100

An example

• US$1,450 rent on a US$150,000 house: 0.97%
• US$1,100 rent on a US$95,000 house: 1.16%
• US$2,100 rent on a US$320,000 house: 0.66%

The second property produces the most income per dollar invested, despite being the cheapest in absolute terms.

Typical ranges

Above roughly 1.3%, look harder rather than celebrating: unusually high ratios usually signal older housing stock, a rougher block, or a rent figure that will not hold in practice.

Why it travels well between markets

Ratios above about 0.8% are where monthly cash flow becomes realistic at normal interest rates. Below about 0.5%, a property is very unlikely to cash flow with a standard loan, however good the city looks otherwise. You would be buying for appreciation.

Unlike cap rate, rent-to-price needs no expense assumptions, so it cannot be gamed by an optimistic pro forma. That makes it the right first filter when you are choosing where to buy, before you have a specific house.

What it ignores

Everything on the expense side. A 1% ratio in a state with 2.3% property tax is a worse deal than a 0.9% ratio where tax is 0.7%. Use it to pick a shortlist of markets, then use the calculator on actual listings.

Related reading

Our markets pages show measured rent-to-price for ten cash-flow cities, and the market picker lets you compare them side by side and add your own. For cheaper entry points specifically, see markets under $200k.