Gross Rent Multiplier (GRM): How to Calculate and Use
by James Kobzeff
Gross rent multiplier (or GRM) is a ratio between the price and gross scheduled income of a property that essentially tells the investor the property price based upon each $1 of annual gross possible income.
Therefore, a 6.0 GRM indicates the rental property price is 6.0 times the gross scheduled income and essentially states that the property would have to collect the income based upon current rents (as if all units were totally occupied) for 6.0 years to total the price.
As a result, the higher the GRM is, the less income there is compared to the price, and thus the more years would be required to collect it; and vice versa.
Gross rent multiplier is not a particularly powerful measurement and is best used as a precursor to a serious income property analysis.
GRM is essentially a rule of thumb measurement that does offer real estate agents and investors a quick method to do a preliminary survey for real estate investing purposes; GRM has the advantage of being a very easy ratio to calculate.
Example. Suppose you were looking at a duplex priced at $300,000 with a gross scheduled income of $30,000. You would calculate GRM by dividing the price by the income and determine that the duplex has a gross rent multiplier of 10.0.
Gross Rent Multiplier = Sale Price / Gross Scheduled Income
Fair enough. But just knowing a rental property's GRM means little by itself, which leads us to the next point about gross rent multiplier. That the only real benefit of GRM is that it can quickly reveal whether or not a property might be line with the market value when compared to similar properties.
Example. If you are aware that another duplex recently sold at a 8.0 GRM you could quickly surmise that a similar duplex with a 10.0 GRM is priced higher. Of course you should not base your investment decision based upon this fact alone, there are other factors to consider, but you would at least get a rough idea of how the duplex fits into the market.
That's the beauty of gross rent multiplier. It provides a quick and easy way to determine whether the rental property you are considering is inline with the recent sales of other rental properties in the area or not.
So You Know
Every ProAPOD® Real Estate Investment Software solution computes the gross rent multiplier automatically as you enter the property data. It is recalculated in real time each time you make changes and instantly posted to the appropriate reports. Learn more at www.proapod.com
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