Gross Rent Multiplier (GRM) is the ratio of the price of real estate investment to its annual rental income before taking into account costs such as property, insurance and utilities taxes; GRM is the number of years it takes the property to pay for itself with the gross rental received. For prospective real estate investors, lower GRM represents a better opportunity.
GRM is useful for comparing and selecting investment properties where depreciation effects, periodic costs (such as property and insurance taxes) and costs to investors issued by potential tenants (such as utilities and repairs) can be expected to be uniform throughout the property (either as a uniform value or uniform fraction of gross rental income) or insignificant compared to gross rental income. Because these costs are also often more difficult to predict than market lease returns, GRM serves as an alternative to measuring net investment returns where such a measure would be difficult to determine.
Example; $ 200,000 Selling Price/$ 20,000 gross annual rental income = 10
Today, it is very common for GRM to be quoted by real estate professionals by using an annual lease rather than a monthly rental. A 100 GRM (monthly rent) = 8.33 GRM (annual rent). An 8.33 GRM calculated on an annual lease indicates that the gross rent will pay the property in 8.33 years.
The general dimension of real estate rental value based on net income rather than gross rental income is the Capitalization Rate or Capitalization Rate. Unlike GRM, Cap Rate is not a multiplier but an annual rate of return. A multiplier similar to GRM derived from net income would be a multiplication multiplication from the Cap Level.
Video Gross Rent Multiplier
References
Source of the article : Wikipedia
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