The Rent-to-Price Ratio: A Deeper Dive

The rent-to-price ratio is a simple but powerful back of napkin approach to compare renting and buying costs. It’s calculated by dividing the monthly rent of a home by its purchase price.

This number helps you gauge whether renting or buying is more cost-effective in your market.

Here's how to interpret it:

With that Framework in mind. Let’s look at an example of how this ratio can be used to compare the same sized home in two different cities. We’ll assume the same sqft and bed/bath counts. 

Obviously this ratio isn’t the whole story, it doesn’t account for maintenance, tax benefits (like mortgage interest deductions), or market trends: but it’s a quick way to compare apples-to-apples. Check local listings on Zillow or Redfin to find typical rents and home prices in your area, and use the following calculator to see the ratio for homes you’re eyeing.

Rent-to-Price Ratio Calculator