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.
Gross Rent Multiplier (GRM)is 11.90
- Depending on the loan program, an optimal GRM is usually between 4 and 7
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.