real estate

Price to Rent Ratio – Defined

In an earlier post it showed Canada is the most overvalued place in the world based on the price to rent ratio. In this post I would like to define what the ratio means.

The ratio is calculated using the following inputs:

Price of home/annual rent = price to rent ratio

Rules of thumb:

  • Price-to-rent ratio of 1 to 15 would mean it makes more sense to purchase than to rent.
  • Price-to-rent ratio of 16 to 20 would mean its typically better to rent than to buy, but this is the grey area where a lot would depend on the particular market and situation.
  • Price-to-rent ratio of 21 or higher means its much better to rent than to buy

 

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