A property generates annual gross income of $180,000 and sold for $1,800,000. What is the gross income multiplier (GIM)?
Correct Answer
A) 10
Gross Income Multiplier = Sale Price ÷ Annual Gross Income. $1,800,000 ÷ $180,000 = 10.
Why This Is the Correct Answer
Option A is correct because the GIM formula is Sale Price ÷ Annual Gross Income. Plugging in the values: $1,800,000 ÷ $180,000 = 10. This means the property sold for 10 times its annual gross income, which is a typical GIM range for many commercial properties. The calculation is straightforward division that results in a whole number multiplier.
Why the Other Options Are Wrong
Option B: 0.1
Option B (0.1) represents the inverse calculation of Annual Gross Income ÷ Sale Price, which would give the gross income ratio or capitalization rate concept, not the gross income multiplier. This is a common error where students flip the formula.
Option C: 100
Option C (100) would result from an incorrect calculation, possibly multiplying instead of dividing, or confusing the GIM with a percentage calculation. This number is unrealistically high for a typical gross income multiplier.
Option D: 18
Option D (18) appears to be a calculation error, possibly from incorrectly manipulating the numbers 180 and 1800, or from using an incorrect formula altogether. This could result from dividing 1800 by 100 instead of using the full values.
GIM = Sale Price Goes Into Money
Remember 'GIM = Sale Price Goes Into Money' where the sale price 'goes into' (divided by) the gross income money. Think of it as 'How many years of gross income does this sale price represent?' The bigger number (sale price) divided by smaller number (annual income) gives you the multiplier.
How to use: When you see a GIM question, immediately identify the sale price (larger number) and annual gross income (smaller number). Ask yourself 'How many times does the income go into the sale price?' Then divide sale price by annual income.
Exam Tip
Always double-check that you're dividing sale price BY income, not income by sale price. The GIM should typically be a number between 4-15 for most properties - if you get a decimal or a very large number, you likely flipped the formula.
Common Mistakes to Avoid
- -Flipping the formula and dividing income by sale price
- -Using monthly income instead of annual income
- -Confusing GIM with capitalization rate or other ratios
Concept Deep Dive
Analysis
The Gross Income Multiplier (GIM) is a fundamental ratio used in real estate valuation to quickly assess the relationship between a property's sale price and its annual gross income. This metric serves as a comparative tool that allows appraisers and investors to evaluate properties within similar markets and property types. The GIM provides a snapshot of how many years of gross income it would take to equal the purchase price, making it valuable for initial property screening and market analysis. Understanding GIM calculation is essential for the income approach to valuation and is frequently tested on appraisal exams.
Background Knowledge
The Gross Income Multiplier is calculated as Sale Price divided by Annual Gross Income, resulting in a ratio that indicates how many times the annual income the sale price represents. GIM is used primarily for quick property comparisons and initial valuation estimates, though it has limitations since it doesn't account for expenses, vacancy rates, or other factors affecting net income.
Real-World Application
Appraisers use GIM to quickly screen comparable sales and identify properties that sold at similar income multiples. For example, if similar apartment buildings in an area have GIMs between 8-12, a property with a GIM of 15 might be overpriced or have unique characteristics that justify the premium.
More Math & Stats Questions
What is the area of a triangular lot with a base of 120 feet and a height of 80 feet?
An irregular lot has the following measurements: Side A = 100', Side B = 150', Side C = 120', Side D = 180'. If the lot can be divided into two rectangles (100' × 150' and 120' × 30'), what is the total area?
A property has a potential gross income of $180,000, vacancy and collection loss of 7%, and operating expenses of $65,000. What is the NOI?
A property generates $120,000 in net operating income and is valued at $1,500,000. What is the capitalization rate?
A building has potential gross income of $180,000, vacancy and collection loss of 8%, and operating expenses of $54,000. What is the net operating income?
People Also Study
Valuation Principles & Procedures
25% of exam
Property Description & Analysis
20% of exam
Market Analysis & Highest/Best Use
15% of exam
USPAP (Ethics & Standards)
15% of exam
Report Writing & Compliance
10% of exam