What is the Gross Rent Multiplier used for? Is 6.66 a good indicator?

In Buying Property - Asked by Thomas L. - Apr 4, 2015
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Jeff B.
Bloomington, IN

Gross Rent Multiplier (GRM) is the monthly gross rent x 12 months. Then divide by purchase price to arrive at the GRM #.
For the seller: Higher the number the better.
For the buyer: Lower the number the better.
The number will be a good benchmark for what other income producing properties sold for in the area. The number is only retaliative to the area in which the property is located.
Good Luck

Apr 4, 2015
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Tanius S.
Oakbrook Terrace, IL

The gross rent multiplier has been used to appraise other properties that are typically not purchased as income properties but that could be rented: one - and two-family homes.
The GRM method relates the sales price of a property to its expected rental income. For residential properties, the gross monthly income is typically used; for commercial and industrial properties, the gross annual income is used. The gross income multiplier method is calculated as follows:
Sales Price / Rental Income = Gross Rent Multiplier
Recent sales and rental data from at least three similar properties are used to establish an accurate GRM. The GRM can then be applied to the estimated fair market rental of the subject property to determine its market value, which can be calculated as follows:
Rental Income X GIM = Estimated Market Value
People that lease apartments tend to be tenants-at-will after the 1st year; I suggest comparing the property you are interested in buying to the PPU (Price Per Unit). Think of it this way: does what I pay per unit balances out what I’m collecting?

Apr 30, 2015
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Alan C.
Suwanee, GA

Depends. GRM is a useful metric, but only useful in the proper context. You must compare your property's GRM to the local submarket. What is the average in that neighborhood/part of the city for your asset/class? In general, as a buyer, you want to be at or lower than the average GRM. However, that doesn't tell the whole story. In NYC right now, the GRMs for apartments will be SKY high, but because of the anticipated appreciation, they may still be a better bet overall than a low GRM in Toledo.

May 6, 2015
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