Gross Rent Multiplier Calculator
Determine a property’s profitability compared to similar properties within the same real estate market using our calculator.
What Is Gross Rent Multiplier (GRM)?
Gross rent multiplier, or GRM, is a metric utilized to quickly calculate a property’s profitability compared to similar properties within the same real estate market. In order to determine the gross rent multiplier, you would divide the price of the property by its gross rental income. For example, if a property is selling for $5,000,000 and it produces a Gross Rental Income of $820,000, the GRM would be $5,000,000 divided by $820,000 which results in a value of 6.09. This metric is then compared to similar properties in the same market, and it provides actionable data for investors and lenders to consider.
GRM Calculator
The Gross Rent Multiplier Formula
The formula to calculate GRM is:
Gross Rent Multiplier = Property Price ÷ Gross Rental Income
Gross Rent Multiplier in Practice
A GRM calculation can be utilized to help estimate the value of an income-producing property when its value is not known. If a property produces about $200,000 of income annually and the average GRM of similar properties in the same market is about 5, we could simply multiply the two figures ($200,000 x 5) to come up with an estimated property value of $1,000,000. While this is not an exact calculation or even meant to be taken as one, it can still provide a reasonable estimate for a property investor to use when comparing a variety of properties.
Additionally, the GRM can also be utilized to help calculate the expected rent for a property. If you know what the value of a property is, and you know the average GRM for similar properties in the area, all you would have to do is divide the property value by the average area GRM to determine expected rental income.
Gross Rent Multiplier Calculator
GRM on small apartment deals: where it helps and where lenders ignore it
GRM is a screening tool for buyers, not a sizing tool for lenders. It is useful for sorting listings in an afternoon. It plays no part in how an agency, bank or CMBS lender decides how much to lend on a 5+ unit building.
Where GRM helps
- First pass on listings. Gross rent is often the only reliable number in a listing. GRM lets you compare a dozen buildings in the same submarket before you have expense data on any of them.
- Spotting outliers. A building priced at a much higher multiple than its neighbors either has upside the seller is pricing in or a price that will not survive underwriting. Either way, it tells you where to ask questions.
- Checking a broker's story. If the offering memorandum shows a cap rate that looks attractive but the GRM is high for the area, the expense figures behind that NOI deserve a hard look.
Where lenders ignore it
Lenders on 5+ unit buildings size loans on net operating income, through the DSCR test, and on appraised value, through the LTV test. Agency term sheets set limits on DSCR and LTV; none sets a GRM. The reason is that GRM uses gross rent, so it cannot see the expenses that decide whether a building can pay its debt.
Take two hypothetical 20-unit buildings, each with $400,000 of gross rent and each priced at $3,600,000, a GRM of 9.0 for both. One has tenant-paid utilities and a recent roof, and runs expenses of 40% of revenue. The other pays all utilities, has an older boiler and a higher tax assessment, and runs at 55%. Their NOI is roughly $240,000 and $180,000. At the same rate and DSCR minimum, the first building supports a loan about a third larger than the second. GRM said they were the same deal.
Expense ratios on small apartment buildings vary widely with who pays utilities, building age, local taxes and whether the owner self-manages. That spread is exactly what GRM leaves out, and why a deal that screens well on GRM can still come up short at the lender. Once a building passes your GRM screen, move to NOI: the NOI calculator for your own figures, the T-12 underwriting calculator for the lender's adjusted NOI, and the DSCR calculator for the loan that NOI supports.
GRM questions from apartment buyers
Do apartment lenders use gross rent multiplier?
Not to size loans on 5+ unit buildings. Agency, bank and CMBS lenders size on net operating income using a minimum DSCR, and on appraised value using a maximum LTV. GRM ignores operating expenses, so it cannot tell a lender whether the property can cover its debt. Buyers use GRM to screen listings; lenders work from the rent roll and the trailing 12-month operating statement.
What is a good GRM for an apartment building?
There is no single good number. GRM depends heavily on the local market, building age and who pays utilities, so it is only meaningful when compared with recent sales of similar buildings in the same submarket. A lower GRM than comparable buildings suggests a lower price relative to rent, but it says nothing about expenses, so confirm it with an NOI and cap rate analysis.
Should I use GRM or cap rate to value a small apartment building?
Use GRM to screen and cap rate to decide. GRM needs only price and gross rent, so it is quick when expense data is missing. Cap rate uses net operating income, which captures taxes, utilities, insurance and repairs, and it is the measure appraisers and lenders rely on. Two buildings with identical GRMs can have very different cap rates and loan amounts.
Can two buildings with the same GRM get different loan amounts?
Yes. Loan size follows NOI, not gross rent. If one building runs expenses of 40% of revenue and another runs 55%, they produce different NOI from the same rent. At the same rate and DSCR minimum, the building with lower expenses supports a noticeably larger loan, even though GRM rates the two deals as identical.