Gross Rent Multiplier (GRM) Calculation Explained

What is the Gross Rent Multiplier (GRM) and how is it calculated?

Is the GRM calculated by dividing the property's sale price by the gross annual rental income? If so, what formula can be used to determine the GRM?

Answer:

Yes, the Gross Rent Multiplier (GRM) is indeed calculated by dividing the property's sale price by its gross annual rental income. The formula to determine the GRM is:

GRM = Property's sale price / Gross annual rental income

The Gross Rent Multiplier (GRM) is a real estate metric that measures the ratio between a property's price and its gross rental income. It provides insight into the investment potential of a rental property by comparing the sale price to the income it generates.

By using the formula GRM = Property's sale price / Gross annual rental income, investors can quickly analyze the value of a property based on its rental income. A lower GRM indicates a better investment opportunity, as it shows that the property's price is lower relative to the rental income it generates.

In the given scenario where a property sells for $95,750 and is rented for $975 per month, the annual rental income can be calculated by multiplying the monthly rent by 12 months in a year. This gives an annual rental income of $11,700. By dividing the property's sale price of $95,750 by the annual rental income of $11,700, the GRM is approximately 8.2.

It's important for real estate investors to understand and utilize the concept of Gross Rent Multiplier (GRM) to make informed decisions when evaluating potential investment properties.