Gross Rent Multiplier (GRM): Calculator, Property Evaluation, Alternatives | Multifamily Loans (2024)

FAQs

How do you calculate gross rent multiplier? ›

Here's the formula you'll use to calculate the gross rent multiplier: Gross Rent Multiplier = Property Price (or current market value) / Gross Rental Income.

If you know the market GRM and the gross rental income the property generates, you can also use the gross rent multiplier formula to calculate what the property value is: Gross Rent Multiplier = Property Value / Gross Rental Income.

For example, let's say a multifamily property is listed for $500,000 and has an annual gross rental income of $70,000. To calculate the GRM, divide the property's price by its gross annual rental income: $500,000 ÷ $70,000 = 7.14.

However, you want to shoot for a GRM between 4 and 7. A lower GRM means you'll take less time to pay off your rental property, which means it will likely be more profitable.

Question: What is the Gross Rent Multiplier for an apartment whose total rents are $98,000 with a value calculated at $750,000 :7.6530.

For a potential investment to pass the 1% rule, its monthly rent must equal at least 1% of the purchase price. If you want to buy an investment property, the 1% rule can be a helpful tool for finding the right property to achieve your investment goals.

To calculate the gross rent multiplier (GRM), divide the sale price of the property by the annual rental income. For a house renting at $900 per month and selling for $126,000, the GRM is 11.67, which rounds to 12, not matching any of the provided answer options.

According to Rasti Nikolic, a financial consultant at Loan Advisor, “in general though, 5% to 10% rate is considered good. Property investors use cap rate every time they invest in a property because it gives them an idea about the profitability.

GRM is a screening tool used to compare properties against one another to determine whether the building is a worthwhile investment. It is a simple calculation that gives you a quick idea of how multiple properties compare to one another from an investment standpoint.

What is an example of gross rent? ›

When you sign a lease, you agree to pay a certain amount each month, and the combined amount of all monthly rental payments is your annual gross rent. For instance, if your monthly rent is $2,000 and you have a one-year lease, your annual gross rent would be $24,000.

By dividing the sales price of the building by the gross rent, the appraiser obtains a gross rent multiplier for each of the comparables.

GRM of 20+: This is typically a hot property in a hot area in a seller's market. You are not going to cashflow positively on this property despite how much you put down, however, the potential for appreciation is outstanding. GRM of 17-20: Great property in a great area in a seller's market.

Simply divide the median house price by the median annual rent to generate a ratio. As a general rule of thumb, consumers should consider buying when the ratio is under 15 and rent when it is above 20. Markets with a high price/rent ratio usually do not offer as good an investment opportunity.

A good profit margin for rental property is typically greater than 10% but between 5 and 10% can be a good ROI on rental property to start with. What is the 2% cash flow rule? The 2% cash flow rule of thumb calculates the amount of rental income a property can expected to generate.

Calculating the GIM requires that you divide the property value by the total income from the property, including rent, vending machines and services. As an example, if a $400,000 property produces $100,000 in total revenue, divide $400,000 by $100,000 to calculate the GIM of 4.

The gross rent multiplier is calculated using the gross rent for a property. On the other hand, the gross income multiplier is calculated using gross potential income, which considers all sources of income for a property, not just the rental income.