We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Gross Rent Multiplier?

Jim B.
By
Updated: May 17, 2024
Views: 9,474
Share

Gross rent multiplier is a measurement used by real estate professionals to judge the profitability of income-producing rental properties. It is calculated by taking the sale price of the property and dividing it by the potential rental income of the property. This value can be calculated at a monthly or yearly level and is used to assess properties in one area with those in the same in area. When comparing the gross rent multiplier, or GRM, of two properties, the property with the lower GRM has more potential for profit.

Investors in real estate need to know whether they are getting a good value from the capital that they invest in properties. As such, they need some sort of determining factor to decide on the relative value of properties in the same area. While it does have some limitations, gross rent multiplier is a good measuring stick because it gives investors a quick idea of how profitable a specific rental property can be.

As an example of how to calculate the gross rent multiplier, imagine that a real estate investor targets an apartment building that has a sale price of $400,000 US Dollars (USD). For that property, the income that would be gained in a single month if all rooms were occupied, also known as the gross rental income, is $8,000 USD. To calculate the GRM, the $8,000 USD is divided into the $400,000 USD. The resulting value of 50 is the monthly GRM for that property.

Taken at face value, the gross rent multiplier is a quick way to judge properties in the same area against one another. A property holding a GRM lower than another property could be considered the more profitable of the two. There are limitations to this quick judgment, though. For example, GRM does not take into account differing operating expenses of distinct properties, nor does it factor vacancy totals into the equation. Both of these issues could significantly affect profitability.

Used in reverse, gross rent multiplier can help an investor judge the fair value of a rental property. For example, imagine that a property's potential gross rental income for a month is $5,000 USD, and the average GRM for properties in the surrounding area is 60. An investor can invert the GRM equation and multiply 60 by $5,000 USD, arriving at $300,000 USD. Thus, $300,000 is an estimate of the value of the property, and the investor can judge this total against the seller's asking price to see if the property is worth buying.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Jim B.
By Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own successful blog. His passion led to a popular book series, which has gained the attention of fans worldwide. With a background in journalism, Beviglia brings his love for storytelling to his writing career where he engages readers with his unique insights.

Editors' Picks

Discussion Comments
Jim B.
Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own...
Learn more
Share
https://www.wisegeek.net/what-is-a-gross-rent-multiplier.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.