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GRM - Gross Rent Multiplier
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.
A GRM of 6.0, for instance, indicates the rental property price is six times the gross scheduled income. That is, the property would have to collect the income based upon current rents (as if all units were totally occupied) for six years to total the price. As a result, the higher the GRM is, the less income there is compared to the price, and thus more years are required to collect it; and vice versa.
How to Calculate GRM
Gross Rent Multiplier = Sale Price / Gross Scheduled Income
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.
For 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.
Okay, but just knowing that the property has a GRM of 10.0 means little by itself, and that 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.
For example, if you are aware that another similar duplex recently sold with a GRM of 8.0, you could quickly surmise that the duplex with the 10.0 GRM is priced higher. 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.
ProAPODŽ Real Estate Investment Software computes gross rent multiplier automatically as you enter the property data. The GRM is recalculated each time you make changes to sale price or income so it is always in real time. Reports such as the APOD, marketing package and assumptions all include gross rent multiplier.
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