Anyone that has been around income property long enough has surely heard of gross rent multiplier. Or perhaps seen it used in an APOD or other investment report characterized simply as GRM.

So what is gross rent multiplier? It’s a method that tells the investor the ratio between the price of the rental property and the rental property’s gross scheduled income. In other words, it tells the investor the property price based upon each $1 of annual gross possible income.

GRM has the advantage of being a very easy ratio to calculate (you can probably do it in your head). However, the results of the calculation are only useful if it can be compared to similar information taken from comparable properties. For example, just knowing that a property has “X” GRM means little by itself. However, when it can be compared to a similar property that has “Y” GRM, it can reveal something about the market value of an income property and whether or not the subject property is priced right or not.

Other than ignoring the time value of money, the primary disadvantage of GRM is that it does not consider operating expenses. Keep in mind that GRM concerns rental income (the top line of the income statement) before any adjustments are made for property taxes, maintenance and repairs, and other operating expenses.

You will be shown how to calculate GRM and the best way to use it in an upcoming article. Please stay tuned.

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