What is Net Income Multiplier?
The Net Income Multiplier (NIM) is a real estate investing metric that compares the purchase price of a property to its annual net operating income (NOI).
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How to Calculate the Net Income Multiplier
In the real estate industry, the net income multiplier (NIM) is an investing metric calculated as the ratio between the purchase price of a given property and its annual net operating income (NOI).
- Property Purchase Price → The price at which an investment property can be acquired by a buyer in the market.
- Net Operating Income (NOI) → The rental and ancillary income generated by a property before deducting operating expenses and debt costs, such as mortgage payments and periodic interest obligations.
Similar to the gross rent multiplier (GRM), gross income multiplier (GIM), and the capitalization rate (or “cap rate”), the primary use-case of the net income multiplier (NIM) is for estimating the price of a property using a comps-derived multiplier.
For rental property investments, most of the income stream earned by the real estate investor is comprised of rent payments collected from tenants as part of a leasing arrangement.
Because the net income multiplier uses net operating income (NOI) in the denominator, the NIM method is a more practical approach to perform comps analysis on similar properties on a more “apples-to-apples” basis.
The process of calculating the net income multiplier (NIM) is a three-step process:
- Identify Property Purchase Price → The first step is to identify the current sale price of the property, as of the most recent date, which is typically readily available information found online, i.e. the listing price.
- Compute Net Operating Income (NOI) → The net operating income (NOI) is determined by taking the property’s effective gross income (EGI) and subtracting any direct operating expenses.
- Calculate Net Income Multiplier (NIM) → In the final step, the net income multiplier is computed by dividing the property purchase price by the property’s net operating income (NOI).
Net Income Multiplier Formula (NIM)
The formula to calculate the net income multiplier (NIM) consists of dividing the purchase price of a property by its net operating income (NOI).
Where:
- Property Purchase Price → The current stated selling price of the property on the market for sale (i.e. the listing price)
- Net Operating Income (NOI) → The income generated by a property across a one-year period after subtracting operating expenses from its effective gross income (EGI).
Like the gross rent multiplier (GRM), the valuation of a property can be determined using the net income multiplier (NIM).
Given the net income multiplier (NIM), the value of a real estate property can be estimated as the product of the multiplier and the property’s net operating income.
