Gross rent multiplier formula
The gross rent multiplier divides price by gross rent, so it says how many years of rent the price represents.
| Solve for | Formula | Example |
|---|---|---|
| GRM | Price ÷ gross annual rent | $360,000 ÷ $36,000 = 10.0 |
| Value | GRM × gross annual rent | 9.5 × $36,000 = $342,000 |
| Rent needed | Price ÷ GRM | $360,000 ÷ 9.5 = $37,895 a year |
Annual or monthly GRM?
Investors usually quote GRM on annual rent, but the U.S. appraisal report for two- to four-unit properties uses monthly rent: the appraiser multiplies total gross monthly rent by a gross rent multiplier drawn from comparable sales, each listed with its sale price, gross monthly rent and GRM.[1] A monthly GRM is twelve times the annual one.
| Annual GRM | Monthly GRM | Gross yield |
|---|---|---|
| 7.0 | 84 | 14.3% |
| 8.0 | 96 | 12.5% |
| 9.0 | 108 | 11.1% |
| 10.0 | 120 | 10.0% |
| 12.0 | 144 | 8.3% |
| 15.0 | 180 | 6.7% |
Using GRM with comparable sales
A GRM is only useful against recent sales of similar properties. Work out each comparable's GRM, then apply a figure from that range to your property's rent.
| Comparable | Sale price | Monthly rent | Annual GRM |
|---|---|---|---|
| Duplex on Elm St | $342,000 | $2,950 | 9.66 |
| Duplex on 4th Ave | $375,000 | $3,200 | 9.77 |
| Duplex on Lake Rd | $330,000 | $2,900 | 9.48 |
The average is 9.64. Applied to $36,000 of yearly rent it suggests about $346,913, against an asking price that implies 10.00. The rental property value calculator sets this value next to the one from a market cap rate.
What a GRM leaves out
A gross rent multiplier ignores vacancy and every operating expense, so it is a quick screen rather than a valuation. Like other income multipliers, it expresses a relationship between price and income, not a rate of return.[2] Two buildings at the same price and rent have the same GRM even when their costs differ:
| Building A | Building B | |
|---|---|---|
| Price | $360,000 | $360,000 |
| Gross annual rent | $36,000 | $36,000 |
| GRM | 10.0 | 10.0 |
| Operating expenses (owner pays utilities in B) | $9,000 | $15,500 |
| NOI after 5% vacancy | $25,200 | $18,700 |
| Cap rate | 7.00% | 5.19% |
That is why appraisers and investors also value income property on net operating income divided by a market cap rate.[3] Use the cap rate calculator once you have the expenses.
GRM, gross yield and the 1% rule
Gross rental yield is the inverse of the annual GRM: a GRM of 10 is a 10% gross yield.[4] The 1% rule (monthly rent of at least 1% of price) corresponds to a GRM of about 8.3 or less. The rental yield calculator works in the same terms for UK and Australian listings.
Frequently asked questions
How do you calculate the gross rent multiplier?
Divide the price by the gross annual rent. $360,000 ÷ $36,000 = 10. For a monthly GRM, divide by monthly rent instead.
What is a good gross rent multiplier?
There is no universal figure. A lower GRM means a lower price for each dollar of rent, but GRMs vary by market and property type, so compare a property with similar recent sales nearby.
Is a lower GRM better?
For a buyer, a lower GRM means paying less per dollar of rent. It can also reflect higher expenses, more risk or a weaker location, which GRM does not show.
What is the difference between GRM and cap rate?
GRM uses gross rent and ignores expenses; cap rate uses net operating income after vacancy and expenses. GRM is quicker; cap rate is more complete.