can you determine the price of a property using both cap rate and grm?

I'd like to set a specific GRM and cap rate that I'd like to have for the property. If I do that what is the formula that would generate the price of a property using both cap rate and GRM?
In Selling Property - Asked by Noelle C. - Oct 3, 2013
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Answer(s)

Donald M.
Broker/Agent
Mims, FL

no

Oct 3, 2013
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Rick H.
Broker/Agent
Whittier, CA

Typically, the GRM is the "Product" of Price / Gross Annual Rent. Ie 10x gross = $50,000 (gross rent) = $500,000.
Cap rate is a little more complicated but is typically also a product of Net operating income and Price. If you know Cap and know income then you can also solve ie $25,000 net income / 6% = $416,000.
You can solve for any item in an equation. However, you will be manipulating rental numbers and they should be estimated at a realistic range.

Oct 3, 2013
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Patricia S.
Broker/Agent
Orlando, FL

There are more ways to evaluate a property than just cap rate and grm. You can do a comparative market analysis, the cost to build new, and the income approaches that you mention. I usually try and get an idea of all three. An appraisal usually leans more on the comparative market approach.

Oct 21, 2013
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Rob B.
Chandler, AZ

Noelle....
A comparative market approach is certainly critical to an investment in real estate. However, within that approach in commercial real estate you will find the most important of all measures, "what will the investment return on a capitalization of net income, compared to other investments for 100% of my money?"
Then one turns to leverage aspects, value improvement opportunity, and escape or hold plans as well as other things that are important to one's investment of money.
As far as I am concerned, one can forget about GRM in commercial real estate if they are very aware of rental rate comparisons.
An abundance of good analysis can be done for you by a competent commercial broker. My advice is get a seasoned professional in your area to provide value answers for you
Onward and Upward
Rob Baird
Phoenix AZ
rob@capratecommercial.com

Oct 28, 2013
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Laura P.
Researcher
Scottsdale, AZ

Cap rate & GRM are used by sellers to set a selling price for rental properties & by buyers trying to decide what price to offer. Divide price of a property by the Gross Rent you get the GRM.
GRM= Price / Scheduled Gross Rent.
CAP rate used to compare a real estate investment against other investments like a bank account or mutual funds.
CAP RATE = Net Income /Price
Though gross rent multiplier is certainly the easiest method to calculate.

Nov 11, 2013
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