Gross Rent Multiplier (GRM) is the ratio of the price of a real estate investment to its annual rental income before expenses such as property taxes, insurance, and even utilities for vacation rental properties. You will compare the rental income and property price to the other rentals in the area using the GRM.

For example, let’s say you are looking at a 4 unit rental property priced at $200,000, with monthly rental income of $2,000 ($500 each unit). Using the GRM, you would first calculate the yearly rental income which will be $24,000 ($2,000 X 12). The GRM would be $200,000 divide by $24,000 equals to 8.33 . You can compare the GRM with other similar properties in the same area to find out if $200,000 is a comparable price or not. The real estate agent could send you the sold listings with the GRM rate for your comparables. Obviously, the lower the GRM, the higher rental income you get.

Other factors to look at besides the GRM is seller motivation, location, property condition, financing, etc… GRM is used to determine the actual earnings of a building, not the future appreciation.  It’s used to compare sales price with other similar properties.

How can you profit from know the GRM?

Simply use the GRM to find properties with below market rents. Without having to do anything else, by raising the rents of your rental properties you will increase the total value of the property.

For example, we negotiated the sales price of the property to $180,000 (I know, shameless plug). The property is fully rented for $500 each unit, but that is below the area average of $600 a month. What if you raise your rents to $600?

Take the rental income of $2,400 (4 units @ $600 each) and get the yearly income. Yearly income is $28,800 ($2,400 X 12 months)

Multiply the area GRM of 8 X $28,800 = $230,400.

You can see that raising the rents only $100 a month with increase the total value of the property by over $91,000 using the GRM.

I hope I made this example clear, because it really is easy to see and understand. Real estate investing doesn’t have to be hard or scary. Just use these principles that have been around for a long time and proven to work.

Any questions or concerns are fully welcome, just leave them in the comment section.