A house sold for $438,000 with monthly rent of $2,400. The monthly gross rent multiplier is:
Correct Answer
D) 182.5
Why this is correct: The Monthly Gross Rent Multiplier (MGRM) is Sale Price divided by Monthly Rent. Calculation: $438,000 ÷ $2,400 = 182.5. Why the other choices are wrong: '18.25, misplacing a decimal place' results from $438,000 ÷ $24,000 (using annual rent incorrectly). '15.2, using annual rent instead' is the Annual GRM: $438,000 ÷ ($2,400 × 12) = $438,000 ÷ $28,800 ≈ 15.2. '1,051, multiplying rather than dividing' results from $438,000 ÷ $416 (or similar miscalculation). Exam tip: GRM = Price / Rent. Be consistent: Monthly Rent → Monthly GRM; Annual Rent → Annual GRM.
Why This Is the Correct Answer
Option D is right because four hundred thirty-eight thousand divided by two thousand four hundred is one hundred eighty-two point five. The stem specifies monthly rent and asks for the monthly multiplier, so the division is done once with no conversion. Applied in reverse, a subject renting for two thousand five hundred a month in this market would indicate about four hundred fifty-six thousand. Monthly multipliers in the low hundreds and annual multipliers in the low tens are the ranges to expect for residential property, which is a useful reasonableness check.
Why the Other Options Are Wrong
Option A: 18.25, misplacing a decimal place
Eighteen point two five is the result of dividing the price by twenty-four thousand rather than by two thousand four hundred, a decimal slip of one place. The figure is too small to be a monthly multiplier and too small to be an annual one, so it corresponds to no consistent pairing of price and rent. Checking the order of magnitude against the expected ranges catches it instantly.
Option B: 15.2, using annual rent instead
Fifteen point two is the annual gross rent multiplier, obtained by dividing the price by twelve months of rent - twenty-eight thousand eight hundred. It is a correct number answering a different question, which makes it the most dangerous distractor in the set. The stem asked for the monthly multiplier, and the two differ by exactly twelve.
Option C: 1,051, multiplying rather than dividing
Roughly one thousand fifty comes from multiplying price by rent rather than dividing, with the decimal truncated. A multiplier is by definition a quotient, and multiplying two large figures produces a number with no interpretation in this framework. Any multiplier in the thousands should prompt an immediate recheck of the operation.
Price over rent, same clock
Multiplier equals price over rent, and both sides run on the same clock. Monthly in, monthly out. Annual in, annual out. The two answers differ by twelve, so an off-by-twelve error is always sitting in the answer choices.
How to use: Underline the word monthly or annual in the stem, compute the division once, and check the magnitude - monthly multipliers land in the hundreds and annual ones in the low tens for typical residential property. Anything outside those bands signals a unit or operation error.
Exam Tip
The gross rent multiplier is a shortcut that ignores expenses and vacancy, so a question asking whether it is appropriate is usually testing whether the comparables truly share the subject's expense and occupancy profile.
Common Mistakes to Avoid
- -Extracting on one rent basis and applying on another
- -Using contract rent instead of market rent
- -Multiplying price by rent instead of dividing
- -Applying a multiplier where the comparables differ materially in expenses or vacancy
Concept Deep Dive
Analysis
This question tests the mechanics and the unit discipline of a gross rent multiplier. The multiplier is a ratio of price to rent, extracted from sales of rented properties and applied to the subject's market rent to produce a value indication. Because it is a ratio, the units on both sides have to match: a multiplier derived by dividing price by monthly rent can only be applied to monthly rent, and one derived from annual rent only to annual rent. The monthly and annual versions differ by a factor of twelve, so mixing them produces an error of an order of magnitude. Two further disciplines matter in practice. The rent used should be market rent estimated consistently across the comparables and the subject, not whatever contract rent happens to be in place, and the technique carries an implicit assumption that the comparables share the subject's expense ratio, vacancy pattern, and quality, since none of those enters the ratio explicitly.
Background Knowledge
You need the gross rent multiplier as price divided by rent, extracted from comparable sales of rented properties, and the requirement that the rent basis be identical when extracting and when applying. You should also know that market rent rather than contract rent is the appropriate input, that the technique assumes comparability in expenses, vacancy, and quality, and how the gross rent multiplier differs from the gross income multiplier used for income-producing property.
Real-World Application
An appraiser valuing a rental house extracts monthly multipliers of 178, 182, and 185 from three recent sales of comparable rentals, concludes 182 for the subject, and applies it to a market rent of two thousand four hundred supported by three current leases. The report states the rent basis explicitly so no reader misapplies the figure.
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Previous Question
A property's income stream includes $85,000 in base rents and an estimated $15,000 in reimbursements for property taxes and insurance from tenants (recoveries). Market research indicates a vacancy and collection loss of 8% is typical for similar properties. What is the estimated effective gross income?
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A rental house sold for $396,000 and rents for $2,200 a month. Its monthly gross rent multiplier is: