What is a good Gross Rent Multiplier as a quick ratio/gauge for a buyer?

Some of the properties in my area (Bergen County, NJ) I have come across have GRMs in the 20's. Cap Rates I work out to be below 3 which seems quite low. The price range I am looking at is about 300k to 900k. Property type is small retail/office/multifamily.
In Buying Property - Asked by Larry K. - Jun 29, 2009
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Chris G.
Lynchburg, VA

I think that GRM's vary so widely between property types and market that it is virtually impossible to have someone else give you an indication of what to use. Through your own research you could determine a range for various types of property. Since this method only looks at the "gross" income of a property, it can be useless if you are not comparing similar properties with similar expenses. It is highly inaccurate if not used correctly. Personally, I only use this for my own purposes to guage price/value. A buyer could use this method incorrectly and make poor decisions as a result.

Jun 29, 2009
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Paul S.
Glendora, CA

I agree totally with Chris. GRM's in my opinion are a complete waste of time since they take nothing into account other than gross. Cap rate at least look at a one year operating model. Cap does not however take into account a loan. Cap is really quite misleading if you are trying to analyze how a property is going to perform past 1 year. What cap will do for you is compare one property price relative to the net operating income (NOI) and price of another in the same market area. As caps go up GRM goes down. I have a hard time believing there is anywhere in the country that still commands a 3% cap? That tells you the price is in the stratosphere relative to the income the property produces. You are probably looking at properties owned by sellers that are in denial as to what is happening to prices (down)? What you really need to look at is internal rate of return (IRR) and capital accumulation. IRR will look at the property over as many years as you wish to project, with variable cash flows and expenses, as well as a loan. Cap will not do that and GRM doesn't do anything useable. Look at caps to determine the relative price to the income that various properties are offering. Do an IRR analysis to determine which one performs the best over time with as many variables as you wish to plug in. paulsylvester@remax.net or 800 554-7363 ext. 208
Paul Sylvester, CCIM

Jun 29, 2009
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Larry K.
Mahwah, NJ

Good information guys. Thank you.

Jul 1, 2009
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