Investment Math
Gross Rent Multiplier (GRM) Explained
The gross rent multiplier is a quick back-of-napkin metric for comparing income properties. It's simpler than the cap rate because it uses gross rents instead of net operating income — but it's also less precise.
The GRM Formula
GRM = Property Price ÷ Gross Annual Rent
A property selling for $500,000 with $50,000 in annual gross rents has a GRM of 10. This means the purchase price is 10 times the annual gross rent.
GRM can also be calculated using monthly rents: Monthly GRM = Price ÷ Monthly Gross Rent. A $500,000 property with $4,200/month in rents has a monthly GRM of about 119.
Practice Questions
Question 1
A duplex rents for $1,500/month per unit and sells for $360,000. What is the monthly GRM? (A) 10 (B) 120 (C) 240 (D) 60
B — Monthly gross rent = $1,500 × 2 = $3,000. GRM = $360,000 ÷ $3,000 = 120.
Question 2
Comparable properties have a GRM of 9. A fourplex generates $60,000 in annual gross rent. What is its indicated value? (A) $480,000 (B) $540,000 (C) $600,000 (D) $660,000
B — Value = GRM × Gross Annual Rent = 9 × $60,000 = $540,000.
GRM FAQ
What's the difference between GRM and cap rate?
GRM uses gross rent (before expenses); cap rate uses NOI (after expenses). Cap rate is more accurate but requires knowing all operating expenses. GRM is faster but ignores expenses, which can vary widely.
Is a lower or higher GRM better?
A lower GRM means you're paying fewer multiples of rent — generally better for buyers. But a very low GRM may signal high vacancies, deferred maintenance, or high expenses. Always investigate why a GRM is unusually low.
When is GRM used vs. cap rate?
GRM is most common for quick comparisons of similar small residential income properties (duplexes, fourplexes). Cap rate is more common for larger commercial or mixed-use properties where expenses are known.