How to Use Price-to-Rent Ratio to Analyze a Location

One of the most popular numbers people like to consider when analyzing a location is the price-to-rent ratio. In other words, what is the average ratio of the median monthly rent divided by the median purchase price in the area?

Let’s Break It Down

If that confused you, let me break it down a little further. The median sales price of an area is the point at which half the properties are more expensive and half the properties are less expensive. You can find this data in a number of places, but I’ve found the most accurate figures at www.zillow.com/research/data/, where you can download a massive amount of data about nearly every zip code in America. Scroll down to the List & Sales Price section.

You’ll be able to download a CSV (comma separated values) file, which you can open with Excel or Google Docs, and see the current and historical median sale price data for almost every zip code in the country. Find your local median sale price by searching for your zip code and write that number down somewhere.

Then head back to www.zillow.com/research/data/ and under Zillow Rentals, download the data on the rental income.

Simply find your zip code and look in the column representing the most current quarter (all the way to the right). There you will find the median rental price for your zip code. To find the price-to-rent ratio, simply divide the first number by the second.

Price-to-Rent Ratio = Median Monthly Rental Price / Median Sales Price

In my area (Cape Coral, FL), according to the data from Zillow, I’ve found my median monthly rental price as of 01/03/2023 is $2,251 and my median sales price as of 01/03/2023 is $158,467.00 ; therefore, my price-to-rent ratio is .014%.