A property generates $8,000 monthly rent and sold for $960,000. What is the Gross Rent Multiplier (GRM)?
Correct Answer
B) 10
GRM = Sale Price ÷ Monthly Rent = $960,000 ÷ $8,000 = 120. Wait, that's not among the options. Let me recalculate: GRM = Sale Price ÷ (Monthly Rent × 12) = $960,000 ÷ $96,000 = 10.
Why This Is the Correct Answer
Option B (10) is correct because it represents the annual GRM calculation. The formula is: Annual GRM = Sale Price ÷ Annual Gross Rent = $960,000 ÷ ($8,000 × 12) = $960,000 ÷ $96,000 = 10. This means the property sold for 10 times its annual gross rental income. The annual GRM is more commonly used in real estate analysis as it provides a standardized yearly comparison metric.
Why the Other Options Are Wrong
Option A: 120
Option A (120) represents the monthly GRM calculation ($960,000 ÷ $8,000), but this wasn't the intended answer based on the available choices and standard industry practice of using annual GRM.
Option C: 96
Option C (96) appears to be the annual rent in thousands ($96,000 ÷ 1,000), but this is not a GRM calculation and represents a misunderstanding of the formula.
Option D: 8.33
Option D (8.33) might result from incorrectly dividing monthly rent by sale price in thousands ($8,000 ÷ $960), which reverses the GRM formula and uses wrong units.
GPS Navigation Method
Think 'GPS' - Gross rent goes to the Purchase price Speedily. Just like GPS directions, you're finding how many times the annual gross rent 'travels' to reach the purchase price destination.
How to use: When you see a GRM question, think GPS: take the sale price (destination) and divide by annual gross rent (your starting point) to find how many 'trips' it takes to get there.
Exam Tip
Always check if the given rent is monthly or annual, and look at the answer choices to determine which GRM version is expected - if answers are in double digits, it's likely annual GRM.
Common Mistakes to Avoid
- -Confusing monthly GRM with annual GRM calculations
- -Reversing the formula by dividing rent by sale price
- -Forgetting to multiply monthly rent by 12 for annual GRM
Concept Deep Dive
Analysis
The Gross Rent Multiplier (GRM) is a quick valuation tool used to compare investment properties by measuring the relationship between a property's sale price and its gross rental income. There are two versions: monthly GRM (sale price ÷ monthly rent) and annual GRM (sale price ÷ annual rent). The context and available answer choices typically indicate which version is being used. In this case, the monthly GRM of 120 wasn't an option, so the question intended the annual GRM calculation. Understanding both versions and recognizing contextual clues is essential for proper application.
Background Knowledge
GRM is a comparative analysis tool that helps investors quickly assess whether a property is reasonably priced relative to its income-generating potential. Lower GRMs generally indicate better investment opportunities, while higher GRMs suggest the property may be overpriced relative to its rental income.
Real-World Application
Appraisers use GRM to quickly screen comparable sales and identify properties that may need closer analysis due to unusually high or low multipliers, helping to establish market-based value ranges for income-producing properties.
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