How is the gross rent multiplier (GRM) calculated?

The gross rent multiplier (GRM) is a simple way to evaluate the value of income-generating properties based on their rental income. The correct method to calculate the GRM is by dividing the sales price of the property by the annual gross rent it generates.

When you use sales price divided by annual gross rent, this calculation provides a quick indication of how many times the annual rental income “multiplies” into the property’s sales price. A lower GRM suggests a potentially better investment since you are paying less for each dollar of rent produced, while a higher GRM may indicate the opposite.

Understanding this metric is crucial for real estate investors and appraisers because it facilitates a straightforward comparison between properties. Investors can use the GRM to assess whether a property is appropriately priced relative to its income potential, aiding decision-making in property purchases.