Gross rent multiplier formula

Here’s how to calculate the GRM: 

GRM = property price or market value / annual gross rent

For example, a property valued at $1 million that generates $200,000 in gross rent per year would have a GRM of 5. 

If you know the typical GRM in a market and how much rent a property generates, you can also use the GRM to estimate the property’s value: 

Property value = GRM x annual gross rent

What’s a good gross rent multiplier? 

There’s no single standard for what makes a good GRM—that will vary by market and property type, as well as a property’s perceived risk. GRMs are most useful when comparing similar properties within the same market, to help determine which properties are priced more favorably.

For instance, multifamily properties in major cities typically have higher GRMs than properties in smaller cities or suburban areas. That’s in part because major metropolitan areas tend to experience less volatility. 

GRM vs. cap rate

Both the GRM and capitalization rate, or cap rate, look at the relationship between a property’s value and the income it generates. Both metrics can help investors evaluate the potential return a property offers or compare properties. 

But where the GRM calls for annual gross income, the cap rate uses annual net operating income—in other words, what’s left over when you subtract annual operating expenses from annual gross income.  

Calculating a cap rate requires more information. But because it factors in expenses, it can be a more precise metric. 

Using GRM in real estate investing 

The GRM is a metric that’s easy to calculate and can serve as an initial filter for identifying deals that warrant a deeper look. That’s particularly true for investors who are relatively new to a market and still getting a feel for local property prices.

But GRM shouldn’t be the final step in an investor’s analysis. It doesn’t incorporate operating expenses, which can significantly affect a property’s profitability. A building with an attractive GRM might be less promising than it appears if the property also has high expenses. 

However, elevated expenses shouldn’t automatically disqualify a property. Consider whether expenses are likely to remain high or if you can manage or reduce them. Some costs are recurring while others are one-time or infrequent. For instance, an investor might be able to lower a property tax bill by appealing a property’s assessed value, trim repair costs by addressing deferred maintenance or reduce premiums on an over-insured property.

Those nuances won’t be captured by the GRM—one more reason it’s a good early step, but not a last step, in evaluating properties.