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Before investing in any property, you look at many factors . You look at geographical location, how much that area will develop in the future, who is the developer, whether the property is registered or not, how much rent it will generate and so on and so forth. But here we will tell you about a smart trick which even marque investors use to find out the property of which city they should invest in and how much rent it can generate.

All marque investors use this trick before taking final decision whether to invest in a property market of a city or not.

To access the ownership cost of property in comparison to its rental yield, all ace investors use a financial tool known as Price to Rent ratio (P/R ratio).

This ratio also tells us whether the property we are going to invest in, is expensive in comparison to how much rent it would generate in the long term.

Now, the question is how a common man would find out how much is this ratio of the properties of the city they are going to invest in.

You can take out price-to-rent ratio of any property by dividing the value of that property by the annual rent it currently generates. The standard procedure which marque investors stick to is that if this ratio is between 1 to 15, then, the ownership cost of that property is cheaper and rental yield is higher. While, if that ratio is from 16 to 20, then, the ownership cost of that property is high and it will be expensive to invest in it. While, if that ratio is of 21 and above, then, that property is highly expensive, one should abstain from investing in such properties.

In a nutshell, if P/R ratio is higher, then, the ownership cost of that property is considered as expensive as you wont earn high rent by investing in it.

If the P/R ratio is lower, then, ownership cost of that property is considered as cheaper as you would earn higher rent by investing in it.

So, you must look to invest in properties of that city where the P/R Ratio is lower.

Now, the sad thing is that, in India, residential properties in all top seven cities have price-to-rent ratio of 21 and above. So, it won’t be smart to invest currently in real estate market of top seven cities in the nation. Remember, this is only in contrast to how much rent the property would generate.

These seven cities are New Delhi, Gurugram, Mumbai MMR, Noida, Pune, Bengaluru and Hyderabad.

Properties in all these cities have price-to-rent ratio of more than 21. This ratio is highest in New Delhi (37).

(This article has been prepared for educational purpose with insights from a report shared by real estate advertising platform, Housing.com)