General information only. This ratio is not real-estate, mortgage, tax, or investment advice.
The calculation
Divide a home’s purchase price by the annual rent for a genuinely comparable home. A $600,000 home with rent of $2,200 a month has a ratio of about 22.7: $600,000 ÷ $26,400.
How to read it
A higher ratio means the purchase price is high relative to rent. That can make renting look more attractive on cost alone. A lower ratio can make buying look more competitive. There is no universal cutoff that decides the answer.
What it leaves out
Mortgage rates, down payment, taxes, insurance, maintenance, transaction costs, rent increases, investment returns, moving plans, and local rules can outweigh the ratio. Quality differences between the two homes also matter.
Try your numbers
Use the ratio as a first check, then test the full scenario with the Rent or Buy calculator.