What is Gross Rent Multiplier?
The Gross Rent Multiplier is a way to quickly compare and compute the value of Income producing properties in similar locations. The GRM is the sales price divided by the gross monthly rent.
For example, a duplex sells for $200,000 and receives $1,200 in gross monthly rent has a GRM of 167. It is basically how much in a particular location the market is paying for rent. While the income a property receives is the major factor in determining the value of an income property, it is not the only factor that should go into the the decision to purchase a property or to value a property. Expenses, depreciation, and negative influences all need to be taken into account. The GRM is a tool and nothing more.
If rental data is available, a short analysis rents and recent sales in an area should provide you with the areas GRM. The gross rent multiplier varies from place to place, so a GRM of 167 could be too much to pay for the income in a town in the Midwest and at the same time it can be a virtual steal in California. Know your location!
By Diane Tuman
- Last edited October 12 2012
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