What is Gross Rent Multiplier?
The Gross Rent Multiplier (GRM) compares a property’s fair market value to its expected gross annual rental income.
Conceptually, the GRM is the ratio between a real estate property investment’s market value – i.e. the purchase price – to the anticipated annual rental income can estimate the number of years required for the property to break even and become profitable.
Table of Contents
- How to Calculate Gross Rent Multiplier (GRM)
- Gross Rent Multiplier Formula (GRM)
- Gross Rent Multiplier Calculator (GRM)
- 1. Real Estate Property Rental Income Calculation Example
- 2. Gross Rent Multiplier Calculation Example (GRM)
- What is a Good Gross Rent Multiplier?
- GRM vs. Cap Rate: What is the Difference?
How to Calculate Gross Rent Multiplier (GRM)
The gross rent multiplier (GRM), or “gross rental multiplier”, reflects the number of years it would take for a particular property’s gross rental income to pay for itself.
Most often, the gross rent multiplier (GRM) metric is used by real estate investors and other market participants to ensure that a potential property investment can in fact become profitable.
In practice, the gross rental multiplier is more of a screening tool – i.e. a “quick and dirty” method – to determine the potential profitability of a real estate investment.
Therefore, the gross rental multiplier (GRM) is not only useful for screening purposes, but also for assessing comparable properties.
The multiplier illustrates the “big picture” in terms of the property’s profit potential, enabling real estate investors to determine whether a property investment generates sufficient rental income to justify an investment in it.
To calculate the gross rental multiplier (GRM) metric, only two inputs are necessary:
- Property Value → The fair market value (FMV) of the property as of the present date, i.e. the asking price at which the property can be purchased.
- Gross Annual Income → The estimated amount of rental income expected to be produced each year.
From those two figures, dividing a property’s fair value by its gross annual income yields the gross rental multiplier (GRM).
Gross Rent Multiplier Formula (GRM)
The formula for calculating the gross rent multiplier (GRM) is as follows.
For example, suppose a property’s current fair value is $300k, while its annual gross income is projected to be $60k.
Given those assumptions, we can calculate the gross rent multiplier as 5.0x.
- Gross Rent Multiplier (GRM) = $300k ÷ $60k = 5.0x
The 5.0x multiple suggests that for the property to break even, it would take approximately five years.
