Price Rent Ratio
Price Rent Ratio equals average home ownership price divided by average annual rent
The Price-Rent Ratio (alternately Price to Rent Ratio, or P/R) is a measure comparing average home prices to average annual rent. It is calculated by dividing average home prices by average annual rent. More specifically:
P/R = Home Ownership Price/(Average monthly rent x 12)
In this way, P/R is often used as the real estate equivalent of P/E.
Though less common, some real estate investors will use the inverse of the price rent raio, called the "rent to own" ratio or the "rent to ownership price" ratio.