What distinguishes a gross income multiplier (GIM) from a gross rent multiplier (GRM)?
Correct Answer
D) GIM includes other property income as well as rent.
The gross income multiplier's denominator includes rent and other real estate income; the gross rent multiplier's denominator includes rent only. Multiplier names alone do not establish monthly versus annual or potential versus effective bases. Match the actual denominator.
Why This Is the Correct Answer
Option D is correct because the GIM denominator includes rent plus other real estate income, while the GRM denominator includes rent only. That broader income base is what distinguishes them.
Why the Other Options Are Wrong
Option A: GIM uses assessed value instead of a sale price.
Option A is wrong because both multipliers relate sale price to income; the GIM does not substitute assessed value for sale price. The difference lies in the income denominator, not the price.
Option B: GIM deducts the operating expenses to produce net income.
Option B is wrong because a GIM is a gross multiplier and does not deduct operating expenses. A ratio based on net income would be a capitalization rate relationship, not a gross income multiplier.
Option C: GIM is limited to residential-unit rent.
Option C is wrong because the GIM is broader, not narrower, than rent. Limiting it to residential-unit rent would describe a gross rent figure and ignore the other income it includes.
Rent only versus all income
GRM's R means rent only and GIM's I means all real estate income, including other income.
How to use: Use this to keep the two denominators straight.
Exam Tip
Match the multiplier to the income used in its denominator rather than relying on the label alone.
Common Mistakes to Avoid
- -Assuming a gross multiplier deducts expenses
- -Assuming multiplier names fix the income period
- -Applying a rent-only multiplier to total income
Concept Deep Dive
Analysis
This question tests the difference between the denominators of a gross income multiplier and a gross rent multiplier. A GIM uses total gross income of the real estate, including other income, while a GRM uses gross rent only. The difference is the inclusion of nonrent income.
Background Knowledge
Gross rent refers to income from renting the principal improvements, while gross income includes all income generated by operating the property. Multiplier labels alone do not fix whether income is monthly or annual, potential or effective. The appraiser must apply a multiplier to the same income basis used to derive it.
Real-World Application
An appraiser derives multipliers for small apartment buildings that earn laundry and parking income. Since the subject also has such income, the appraiser uses a multiplier based on total gross income so the subject and comparables share the same basis.
More Income Approach Questions
Which model describes yield capitalization of property benefits?
An appraiser is valuing a duplex. A market survey of recent duplex sales reports prices at 10.8 times potential gross income, with stabilized vacancy and credit loss of 10% of PGI and no other income. The subject's rent schedule is unavailable, but the property manager's records show collected income of $54,000 a year, in line with market rent and the 10% market loss. What value is indicated?
The subject property is a fourplex with annual EGI of $72,000 and operating expenses of $28,800. Of those expenses, $18,000 is fixed and $10,800 varies in direct proportion to EGI. The owner's annual mortgage payments are $21,000. An appraiser projects that EGI will fall 10% because of higher vacancy. What is the projected NOI?
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Annual PGI is $250,000 and combined vacancy and collection loss is explicitly 12% of that same PGI base. There is no other income. What annual EGI remains?
Annual PGI is $360,000 and combined vacancy and collection loss is explicitly 8% of that same PGI base. There is no other income. What annual EGI remains?
Annual PGI is $640,000. Combined vacancy and collection loss is 6.25% of PGI. There is no other income. What EGI remains?
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Annual potential rental income is $600,000 and vacancy loss alone is $36,000. What percentage of potential rent does that loss represent?
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