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Rent-to-Price Ratio
Monthly rent divided by the property price, used to quickly evaluate cash flow potential.
Definition
The rent-to-price ratio divides the monthly rent by the purchase price and expresses the result as a percentage. A $250,000 property renting for $2,000 per month has a ratio of 0.8%. This metric is essentially the monthly version of what the 1% Rule measures. Higher ratios indicate stronger cash flow potential, while lower ratios suggest the property may rely more on appreciation for returns. Rent-to-price ratios vary widely by market — from 0.4% in expensive coastal cities to 1.5% or more in Midwest markets. It is useful for comparing markets and screening properties but does not replace full financial analysis.
How This Relates to DSCR Loans
A higher rent-to-price ratio generally produces a stronger DSCR. Markets with ratios above 0.7-0.8% are more likely to support positive-leverage DSCR financing.
Related Terms
GRM (Gross Rent Multiplier)
The property price divided by annual gross rent, used as a quick screening tool for investment properties.
Cash Flow
The net money remaining after all income is collected and all expenses and debt payments are made.
Market Rent
The rental rate a property would command in the open market based on comparable rental properties.
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