Divide home price by annual rent to gauge whether a market favors buying or renting — a classic housing-affordability signal.
Price-to-rent = home price ÷ annual rent for a comparable home. It's a broad signal, not a personal decision — your timeline, rate, maintenance, tax situation, and how long you'll stay all matter. A rent-vs-buy calculator weighs those directly. Not financial advice.
The price-to-rent ratio compares the cost of buying a home to renting a comparable one. Low ratios (≤15) usually mean buying is relatively cheap; high ratios (21+) suggest renting is the better deal locally. It's a quick temperature check on a housing market's affordability.
Price-to-rent = home price ÷ annual rent
Price-to-rent ratio is home price ÷ annual rent for a comparable home. A household uses it to decide whether to buy or keep renting; an investor uses its inverse, which is gross rental yield, to judge whether a market can produce cash flow at all. Both readings come from the same number, so it is worth understanding what it does and does not capture.
Home price $400,000, comparable rent $2,200 a month ($26,400 a year). The ratio is $400,000 ÷ $26,400 = 15.2. Its inverse is a gross yield of 6.6%. On the common rule of thumb, that sits right at the border where buying starts to lose its edge: a ratio around 15 or below has historically favored buying, 16–20 is a genuine toss-up that depends on mortgage rates and how long you stay, and 21 or above usually favors renting.
The rule of thumb was popularized when mortgages cost 4–5%. The mechanism behind it is simple: owning costs you mortgage interest, property tax, insurance, and maintenance, and that total is compared with rent. At a 15 ratio and a 4% rate, the $400,000 home's annual interest on an 80% loan is about $12,800, so interest plus tax, insurance, and upkeep lands near the $26,400 rent, and the buyer also builds equity. At 7% the interest alone is about $22,400, and total ownership cost runs well above rent. The same 15.2 ratio that favored buying at 4% is a lean toward renting at 7%, at least for anyone who might move within five to seven years. Treat the thresholds as calibrated for moderate rates and shift them down when rates are high.
Flip the ratio and you have gross yield. Above a ratio of about 20, gross yield is under 5%, and after expenses of 35–45% of rent the net yield is 3% or less. No amount of skill makes that cash-flow with a 7% mortgage. Investors in high-ratio markets are betting on appreciation, and they should say so plainly rather than pretend the rent math works. In low-ratio markets, 12 and under, the yield math can work, and the question becomes property condition and tenant quality instead.
For the household decision, a full rent-versus-buy comparison over a chosen number of years, with transaction costs, rent growth, and the invested down payment included, is the honest calculation, and it often reverses the ratio's verdict. For the investor decision, the next step is a cash-flow analysis with real expenses and financing, which the rental property calculator on this site does in one screen.
Not on its own — it means renting is comparatively cheaper there, but a long stay, tax benefits, or appreciation can still favor buying. Use it as one input, not a verdict.
This is a market-wide ratio; a rent-vs-buy calculator models your specific costs (rate, down payment, time horizon) to give a personal answer.
Related: rent vs buy calculator · gross rent multiplier calculator · home affordability calculator · all free calculators.
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