Price-to-rent ratio compares a home's purchase price to the yearly rent it commands. Divide the price by twelve months of rent: a $360,000 house renting for $2,000 a month ($24,000 a year) has a price-to-rent ratio of 15. Lower ratios point to markets where prices are cheap relative to rents, which tends to favor buying and to make the numbers work for a landlord.
The ratio is a fast way to compare cities or neighborhoods on a single scale, and it is the rough inverse of gross rental yield. Like any one-number screen it says nothing about operating costs, financing, taxes, or growth prospects, so treat a promising ratio as a reason to underwrite the deal properly with NOI and cash flow, not as a conclusion.