GRM: Gross Rent Multiplier

What is gross rent multiplier and how do you calculate it?

What is Gross Rent Multiplier

The Gross Rent Multiplier (GRM) compares a property’s market value to its annual gross income and is a quick way to calculate a property’s profitability compared to similar properties in the same market. Although GRM is quick and easy to calculate, it isn’t very precise at deriving a true property value.

Calculating Gross Rent Multiplier

Market Value / Annual Gross Income = Gross Rent Multiplier

For example if a property sold for $800,000 with $130,000 annual income, the gross rent multiplier is 6.15.

Now let's say that you did an analysis of recently sold comparable properties and found that the average GRM is around 6. You can use this market average GRM to approximate the value of a property listed for sale. If you know that the property listed for sale has an annual gross income of $110,000 you can calculate the approximate value as shown below.

GRM (6) x Annual Gross Income ($110,000) = Market Value ($660,000)

You might not want to waste time considering this property if is listed well above $660,000.

Gross Rent Multiplier vs. Cap Rate

Gross Rent Multiplier is often compared with a similar valuation metric known as capitalization rate (cap rate). A property’s cap rate is calculated by taking its net operating income (NOI) and dividing it by the property’s current market value. Unlike GRM, cap rate incorporates vacancies and operating expenses, making it potentially more accurate than GRM. However, when attempting to quickly estimate the profitability of multiple properties, investors may not have the figures available to calculate cap rate, which can make GRM a more efficient method to quickly evaluate investment properties.

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