How to Calculate a Gross Rent Multiplier

by Leigh Thompson ; Updated April 19, 2017
The gross rent multiplier is a quick method of determining a property's value.

Real estate agents often use the gross rent multiplier to quickly determine the value of a property. The gross rent multiplier estimates the value of a property based on the property's potential income. This quick formula gives you a bird's eye view of the profitability of investing in a particular property unit based on the sales price and the estimated income for the property. The gross rent multiplier formula takes the sales price of the property and divides it by the potential yearly income. Once you have the gross rent multiplier, you enter that number into the formula for determining the estimated market value.

Step 1

Locate the asking price of the properties you are interested in purchasing.

Step 2

Calculate your yearly potential income for each property. This figure is the amount of income you expect to earn per year for the property in question. When considering purchasing a rental unit with multiple units, include the monthly income for each unit in the total monthly potential income. When calculating the gross rent multiplier, assume all available units are occupied.

Step 3

Divide the sales price of the property by the yearly potential income. The resulting number is the gross rent multiplier. For example, if the sale price of a property is $180,000 and the income potential is $1,000 a month, the GRM is 15. By itself, the GRM is only a small indicator of the profitability of a certain property.

Tips

  • Calculating GRM is an easy way to compare different properties for sale. The lower the GRM, the better the deal may be. The calculation can give you an idea of which properties are worth a closer look.

Warnings

  • GRM is only a quick method to determine a basic price valuation. It does not take into account operating expenses, vacant units, the general condition of the property or its location, which should all be significant factors in your ultimate buying decision.

Video of the Day

Brought to you by

References

  • Fundamentals of Real Estate Appraisal; William L. Ventolo, Martha R. Williams

About the Author

Leigh Thompson began writing in 2007 and specializes in creating content for websites. She has been published online in various capacities. Thompson has an associate degree in information technology from the University of Kansas and is working on a bachelor's degree in business and personal finance.

Photo Credits

  • Jupiterimages/Comstock/Getty Images
Cite this Article | raiffeisen-cards.ru A tool to create a citation to reference this article Cite this Article

Related pages


what happens if there is a lapse in car insurancepaying crafederal income tax form 1040a instructionsca probate code 240can i be sued for medical billsscholarship for 4.0 gpaticket reselling lawsttee meaningitunes gift card at targetinterest bearing borrowingscan i use ebt card in another statenc state refundshow to prepare a statement of stockholders equitymtlqq stockgarnish income tax refundactivate boa debit cardair conditioner insurancecheap coin sortergift of equity fhahow to closing entriesannual coupon bondwhat does principal balance mean on a car loanmoney for blood plasma donationcan you withdraw money from your ebt cardfree greendot moneypak numbersself employed fuel allowances&p 500 sub sectorsfifo and filoahcccs eligibility income limitssocial security payouthow much does phalloplasty surgery costsharebuilder dividend reinvestmentconvertible subordinated debenturehow do i owe the irs moneytsp home loanadvantages of debenturepaypal cash back debit cardhow to identify counterfeit moneymedicaid doctors in floridaebt restrictionsjackpot tax calculatorhow to apply for pregnancy medicaidcashing in 401k earlywhat is a freddie mac first look initiativecalculating maturity datehow to identify rfid credit cardshighest paying plasma centerscancelling checksmoving expenses deductioninherited ira cost basisstudent loan collateralesthetician scholarships and grantsadvantages disadvantages diversification strategyis child support taxable incomemaricopa county superiour courtaarp lobbying tacticsstock market crash 1929 effectsdefinition of paycheck stubhealth insurance stepchildrenwhat is edusaveirs mileage record keeping requirementsamendatory clausemega million lump summedicare tax withheld on w2ncpdp lookupoverpayment of state taxescar loan for tax exemptionsovereign bank accountcredit card with wifi symbolpenile girth surgeryira withdrawal calculator earlyjcpenney credit card bill payaverage amount fafsa gives