How to Calculate and use the Gross Rent Multiplier Formula
If you’re making your first foray into real estate, or you just want to make sure a potential rental property has serious earning power, you’ve probably come across GRM, or the gross rent multiplier formula before. The GRM is used widely in real estate as a quick way to evaluate a property’s money-making potential. But what exactly is the gross rent multiplier, and how do you use it? There are a couple of specifics to cover first.
What Is the Gross Rent Multiplier (GRM)?
The gross rent multiplier is a simple way to assess a property’s profitability compared to similar properties in a similar real estate market. It’s used by real estate investors and landlords alike, and because it’s a relatively simple formula, it can apply to both residential and commercial properties to assess their income potential.
You might also see the gross rent multiplier formula referred to as GIM, or gross income multiplier. They both refer to largely the same formula, but many investors use GIM to also account for sources of income aside from just rent, such as tenant-paid laundry services or snack machines on a property. In most cases, you can assume they mean and refer to the same thing. Before you start calculating GRM for a property, know that it won’t replace more in-depth ways of assessing property value. Think of it as a first step before you evaluate a property in more detail.
How to Calculate GRM
Here’s how to calculate the gross rent multiplier:
In the formula, the property price is the selling price of the property in question, and the gross annual rental income is how much money you would make in a year from rent on the property. Let’s say you’re looking at a property listed for $400,000, and the gross annual rent (monthly rent times 12) would be $35,000.
$400,000 / $35,000 = 11.42
For the sake of simplicity, lets round that down to 11.4.
If you’re making your first foray into real estate, or you just want to make sure a potential rental property has serious earning power, you’ve probably come across GRM, or the gross rent multiplier formula before. The GRM is used widely in real estate as a quick way to evaluate a property’s money-making potential. But what exactly is the gross rent multiplier, and how do you use it? There are a couple of specifics to cover first.
What Is the Gross Rent Multiplier (GRM)?
The gross rent multiplier is a simple way to assess a property’s profitability compared to similar properties in a similar real estate market. It’s used by real estate investors and landlords alike, and because it’s a relatively simple formula, it can apply to both residential and commercial properties to assess their income potential.
You might also see the gross rent multiplier formula referred to as GIM, or gross income multiplier. They both refer to largely the same formula, but many investors use GIM to also account for sources of income aside from just rent, such as tenant-paid laundry services or snack machines on a property. In most cases, you can assume they mean and refer to the same thing. Before you start calculating GRM for a property, know that it won’t replace more in-depth ways of assessing property value. Think of it as a first step before you evaluate a property in more detail.
How to Calculate GRM
Here’s how to calculate the gross rent multiplier:
In the formula, the property price is the selling price of the property in question, and the gross annual rental income is how much money you would make in a year from rent on the property. Let’s say you’re looking at a property listed for $400,000, and the gross annual rent (monthly rent times 12) would be $35,000.
$400,000 / $35,000 = 11.42
For the sake of simplicity, lets round that down to 11.4.