Price-to-Rent Ratio

A mathematical calculation utilized in the Trulia Rent Vs. Buy Index that compares the totals costs of homeownership with the total cost of renting a similar property. The total costs of homeownership considered by the ratio include:

  • Mortgage principal and interest

  • Property taxes

  • Insurance

  • Closing costs

  • HOA dues where appropriate

  • Mortgage insurance where appropriate

Tax advantages for owning (such as the mortgage interest deduction) and the total costs of renting, including the actual rent and renter’s insurance, are also considered in the total cost of renting.

The price-to-rent ratio provides a comparison between owning and renting properties in certain cities. The ratio uses the average list price with average yearly rent on two-bedroom apartments, condos and townhomes that are listed on www.trulia.com, a real estate search website. The price-to-rent ratio is calculated by dividing the average list price by the average yearly rent price, as follows:

Price-to-rent ratio = Average list price / (Average Rent * 12)

Trulia establishes thresholds for the ratios as follows:

  • Price-to-rent ratio of 1 to 15 = much better to buy than rent

  • Price-to-rent ratio of 16 to 20 = typically better the rent than buy

  • Price-to-rent ratio of 21 or more = much better to rent than buy

Investment dictionary. . 2012.

Look at other dictionaries:

  • price — A fixed value of something. Prices are usually expressed in monetary terms. In a free market, prices are set as a result of the interaction of supply and demand in a market; when demand for a product increases and supply remains constant, the… …   Financial and business terms

  • Gross Rent Multiplier — is the ratio of the price of a real estate investment to its annual rental income before expenses such as property taxes, insurance, and even utilities for vacation rental properties. Other expenses could include the cost of hiring a property… …   Wikipedia

  • Differential and absolute ground rent — Part of a series on Marxism …   Wikipedia

  • Case-Shiller index — The Case Shiller Home Price Indices measure the nominal value of the residential real estate market in the United States. A popular and widely used subset of the Case Shiller Index is the 20 MSA view used by Standard and Poors in the S P/Case… …   Wikipedia

  • Real estate bubble — This article is about the general phenomenon of housing bubbles. For housing bubbles in various countries, see below. A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs… …   Wikipedia

  • Chinese property bubble — An empty corridor in the mostly vacant New South China Mall. The Chinese property bubble is an alleged ongoing real estate bubble in residential and/or commercial real estate in the People s Republic of China. The phenomenon has seen average… …   Wikipedia

  • Revenue — For other uses, see Revenue (disambiguation). Accountancy Key concepts Accountant · Accounting period · Bookkeeping · Cash and accrual basis · Cash flow management · …   Wikipedia

  • ECONOMIC AFFAIRS — THE PRE MANDATE (LATE OTTOMAN) PERIOD Geography and Borders In September 1923 a new political entity was formally recognized by the international community. Palestine, or Ereẓ Israel as Jews have continued to refer to it for 2,000 years,… …   Encyclopedia of Judaism

  • Islamic banking — Banking A series on Financial services …   Wikipedia

  • china — /chuy neuh/, n. 1. a translucent ceramic material, biscuit fired at a high temperature, its glaze fired at a low temperature. 2. any porcelain ware. 3. plates, cups, saucers, etc., collectively. 4. figurines made of porcelain or ceramic material …   Universalium

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.