How to Analyze a Properties Price to Rent Ratios Properly

[Matt R.]

A couple thoughts. Price to rent ratios can be used to compare and or predict initial cash flow on like properties in the same location/zip. The price to rent ratio number does not meaningfully transfer to compare and contrast to other locations/properties 1000 miles away as we see commonly promoted on BP. 

Properties with little to no appreciation can primarily return via initial cash flow ( higher initial price to rent ratios) and without that there is hardly any chance to profit. Other locations might have more profit ways going for them and usually have lower initial price to rent ratios. It could make much less investment sense to compare price to rent ratios as if these two properties were next door to each other.

If you use price to rent of one location and then apply that locations ratio to another property outside of that exact local market this could lead to some very flawed analytics.

Good luck!