Price-to-Rent Ratio Calculator (Buy or Rent?)

How it works

price-to-rent = price ÷ (monthly rent × 12) · gross yield = 1 ÷ ratio · annual cost of owning ≈ price × (owner costs % + mortgage rate % − appreciation %) · rule of thumb: < 15 buy, 15–20 neutral, > 20 rent

Dividing a home's price by a year's rent for the same kind of home gives a single number that captures how expensive ownership is relative to the alternative, and it is the inverse of the gross yield a landlord would earn. Low ratios mean rent is high relative to prices, so buying pays for itself quickly; high ratios mean prices have run ahead of rents and an owner is effectively paying for expected appreciation. The 15 and 20 thresholds come from comparing the unrecoverable costs of owning — property tax, insurance, maintenance and the interest or opportunity cost of the capital, offset by appreciation — with rent; at typical costs those cross near a ratio of 20, which is why the ratio doubles as a quick buy-or-rent screen, though the horizon you plan to stay matters as much.

Worked example

A $450,000 home that would rent for $2,000 a month has a price-to-rent ratio of 450,000 ÷ 24,000 = 18.75 — in the neutral 15–20 band, with an implied gross yield of 5.3%. With 2.5% owner costs, a 6% mortgage rate and 3% appreciation, owning costs about $24,750 a year against $24,000 of rent — a near tie that renting edges, so with 5% transaction costs owning never overtakes on these assumptions; at 4% appreciation it would break even after about 6 years.

Frequently asked questions