As a real estate investor, you probably are already acquainted with a term used frequently in real estate investing circles called Gross Rent Multiplier, or GRM. If not, please read on and discover what gross rent multiplier is and how to calculate it.
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…read the entire article
