Price-to-Earnings Ratio (P/E Ratio) – David Reecher

The price-to-earnings ratio is the common metric used to assess the relative valuation of equities.  To compute the P/E ratio in the case of a rented house, divide the price of the house by its potential earnings or net income, which is the market rent of the house minus expenses, which include maintenance and property taxes.  This formula is:

House P/E Ratio = House Price / Rent-Expenses

Compare this ratio to the simpler but less accurate price-rent ratio.

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