Gross Rent Multiplier Calculator
The Gross Rent Multiplier (GRM)
Also called the Gross Income Multiplier, the GRM calculator relies on two figures—the property sale price and monthly income from rent. Using these values, the GRM calculator gives you a useful metric that determines if the property is worth investigating more. The calculation results predict the number of years it would take for the property to pay for itself.
A lower figure represents a better potential the investment.
Using the GRM calculator has three significant benefits. These are:
– The Gross Rent Multiplier is simple and straightforward to use
– You can use figures that you already know—annual rent and property value
– GRM calculations can help compare similar properties to spot lucrative investments
How to Use theGross Rent Multiplier Calculator
Here is how the simple GRM calculation works:
Property price ÷ gross annual income = gross rent multiplier
GRM Calculator Works
Let’s say that you are thinking about buying an investment property that is selling for $650,000. You know that the average monthly rental income is $7,300. To calculate the gross rent multiplier, you should multiply the monthly income by 12. Now you have the figure for gross annual rent—$87,600. You use the two values to calculate the gross rent multiplier this way:
Gross rent multiplier = $650,000 ÷ 87,600 = 7.42.
The result of the GRM calculation is the number of years it will take for the investment to pay for itself.
Use the Gross Rent
Multiplier to Compare Different Properties
You can also use the calculator to identify potential profitable investments. For example, the cheaper property may not always represent the best investment when taking into account gross annual rent.
Here is a way to use the GRM calculator to compare real estate in similar asset classes:
– Property #1—Selling for $900,000 with a gross annual income of $72,000. GRM is 12.5.
– Property #2—Selling for $1.9 million with a gross annual income of $210,000. GRM is 9.04.
– Property #3—Selling for $2.85 million with a gross annual income of $345,000. GRM is 8.26.
So, in terms of real estate investing, the GRM calculation shows that property #3 is worth carrying out due diligence.
It’s worthwhile remembering that the GRM calculation is only the start. After using the calculator to identify potential profitable investments, its crucial to dig deeper to crunch more numbers. For example, the calculator doesn’t take into account risk factors or any of the following:
– Operating expenses
– Capitalization rate
– Vacancy rates
– Maintenance expenses
– Property Taxes and insurance
– Mortgage interest rates
To calculate other metrics of investing in real estate, such as Cash on Cash Return (CoC) or Return on Investment (ROI), you should use other calculators.
Gross Rent Multiplier Calculator — In Conclusion
Gross annual rent
Gross rent multiplier
Does this satisfy the 1% rule?
Does this satisfy the 2% rule?