Gross Rent Multiplier (GRM)

The Gross Rent Multiplier (GRM) is another way to screen, value, and compare properties.  Used mostly in the apartment industry, the GRM is much like the Capitalization Rate except that gross rental income is used rather than the Net Operating Income (NOI) to determine the value or asking price of a property.  The Gross Rent Multiplier (GRM) is calculated by dividing the fair market value or asking price of a property by the estimated annual gross rental income.

The Gross Rent Multiplier is also used to estimate the number of years the property would take to pay for itself in gross rents received.  The lower the calculated GRM, the fewer years needed for payback; thus, it is presumed to be a better investment.

EXAMPLE:

If the sales or asking price of a property is $2,000,000 and the annual gross rental income for a property is $300,000, the GRM is calculated to be 6.67 ($2.000,000 ÷ $300,000).