RealInvestorX
Rental deal math
Gross rent multiplier: price relative to rent
The gross rent multiplier (GRM) divides a property's price by its annual gross rent. A lower GRM means you pay less per dollar of rent.
The formula
GRM = purchase price / annual gross rentWorked example
- Comparable: price $300,000, rent $2,500 x 12 = $30,000. GRM = $300,000 / $30,000 = 10.0.
- Your property rents for $2,000 x 12 = $24,000. At the same multiplier, indicated value = $24,000 x 10.0 = $240,000.
Illustrative inputs for learning, not market data or a forecast. Replace every number with figures from your own deal.
How to use it
GRM ignores vacancy and expenses, so two properties with the same GRM can have very different returns. Use it to compare similar properties in one area, and confirm with net operating income and cap rate.
Frequently asked questions
What is a good GRM?
It varies by market and property type. Compare against similar nearby properties rather than a national number.
GRM versus cap rate?
GRM uses gross rent; cap rate uses net operating income, so it accounts for expenses.
Should I use monthly or annual rent?
Annual is standard. A monthly version exists, so confirm which one a source uses before comparing.