How do you calculate gross rent multiplier (GRM)?

Calculating the gross rent multiplier (GRM) involves determining how much investors are willing to pay for a property relative to the income it generates. The formula for GRM is derived by taking the property’s sale price and dividing it by its gross annual rental income. This allows appraisers and investors to assess the value of rental properties based on their income-producing potential.

By using this method, you can quickly gauge how long it might take to recoup the initial investment based on incoming rent, offering a straightforward tool for comparative analysis between similar properties. The lower the GRM, generally, the better the investment can be viewed, as it indicates a shorter payback period relative to the rental income.

In the context of investment real estate, this calculation is essential for making informed decisions about buying or selling properties. The other calculations provided in the choices do not align with the purpose of GRM, either including irrelevant factors or using incorrect mathematical operations. Focusing solely on the sale price and gross income ensures a direct relationship is established that reflects the investment’s performance.