The gross rent multiplier (GRM) is a simple ratio that compares a property’s price with the gross rent it produces. It tells you how many years of gross rent it would take to equal the purchase price, ignoring expenses.
Investors use GRM as a fast first screen to see whether a listing is roughly in line with similar properties before doing a deeper analysis.
How to calculate it
GRM = Property price / Gross annual rent
You can also estimate value from a market GRM:
Estimated value = Gross annual rent x Market GRM
Some investors use monthly rent instead of annual rent. Either works, as long as you compare like with like.
Worked example
A hypothetical triplex is listed at $630,000. Each unit rents for $1,750 a month, so gross annual rent is $1,750 x 3 x 12 = $63,000.
GRM = $630,000 / $63,000 = 10
If recent sales of similar triplexes in the area show GRMs around 9, the same rent implies a value of about $567,000. That suggests the listing may be priced high, or that the property has something special worth paying for.
Limits of GRM
GRM is quick but blunt. Because it uses gross rent, it ignores:
- Operating expenses, such as taxes, insurance and repairs
- Vacancy and collection losses
- Differences in who pays utilities
- Property condition and upcoming capital needs
Two buildings with the same GRM can have very different net operating income if one has much higher expenses. That is why GRM is best for screening and cap rate is better for valuation.
Why it matters for landlords
When you are looking at many listings, GRM helps you quickly separate deals that deserve a closer look from those that do not. Once a property passes the screen, move on to NOI, cap rate and cash-on-cash return using real expense data. If you already own rentals, reports in TenantLoop accounting show your actual rent and expenses by property, so you can calculate these metrics for your own portfolio.
Related terms
Related questions.
What is a good gross rent multiplier?
There is no single good number. Compare a listing's GRM with recent sales of similar properties in the same area; a much higher figure can mean the price is high.
Should I use monthly or annual rent for GRM?
Either works as long as you use the same basis for every property you compare. Annual rent is more common.
Why is GRM not enough to value a property?
It ignores expenses, vacancy, who pays utilities and the property's condition. Use it to screen listings, then check net operating income and cap rate with real expense data.