A property generates annual rental income of $96,000 and sold for $1,200,000. What is the gross rent multiplier (GRM)?
Correct Answer
A) 12.5
GRM = Sale Price ÷ Annual Rental Income = $1,200,000 ÷ $96,000 = 12.5.
Why This Is the Correct Answer
Option A (12.5) is correct because it properly applies the GRM formula: Sale Price ÷ Annual Rental Income. Using the given values: $1,200,000 ÷ $96,000 = 12.5. This means it would take 12.5 years of gross rental income to equal the purchase price. The calculation is straightforward division with no additional adjustments needed.
Why the Other Options Are Wrong
Option B: 8.0
Option B (8.0) represents the inverse calculation (Annual Rental Income ÷ Sale Price), which would give the capitalization rate as a percentage when multiplied by 100, not the GRM.
Option C: 0.08
Option C (0.08) is the decimal form of the capitalization rate (8%), calculated by dividing annual income by sale price, which is the opposite of what GRM measures.
Option D: 125
Option D (125) appears to be a calculation error, possibly from incorrectly moving decimal places or confusing the GRM with a percentage-based metric.
GRM = Get Rich Multiplier
Remember 'GRM = Get Rich Multiplier' where you divide the BIG number (sale price) by the smaller number (annual rent) to get how many years it takes to 'get rich' or recover your investment through gross rent.
How to use: When you see a GRM question, immediately identify the sale price (bigger number) and annual rent (smaller number), then think 'big divided by small equals multiplier years.'
Exam Tip
Always double-check that you're using annual rental income, not monthly - if given monthly rent, multiply by 12 first before calculating GRM.
Common Mistakes to Avoid
- -Dividing annual rent by sale price (calculating cap rate instead)
- -Using monthly rent instead of annual rent
- -Confusing GRM with cap rate formulas
Concept Deep Dive
Analysis
The Gross Rent Multiplier (GRM) is a fundamental real estate investment metric that measures the relationship between a property's purchase price and its gross annual rental income. It serves as a quick screening tool for investors to compare similar properties and assess relative value. The GRM indicates how many years of gross rental income it would take to equal the property's purchase price, making it useful for initial property evaluation. A lower GRM generally suggests better value, though this must be considered within market context and property type.
Background Knowledge
GRM is always calculated as Sale Price ÷ Annual Gross Rental Income, resulting in a multiplier that represents years of income. Unlike capitalization rates, GRM uses gross income (before expenses) and doesn't account for operating costs, making it a simpler but less comprehensive valuation tool.
Real-World Application
Appraisers use GRM to quickly compare similar rental properties in a market area, helping establish value ranges and identify properties that may be overpriced or underpriced relative to their income-generating potential.
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
Related Tools
Previous Question
An income-producing property generates $120,000 in net operating income and has a market value of $1,500,000. What is the capitalization rate?
Next Question
An appraiser is analyzing an irregular-shaped lot. The lot can be divided into a rectangle (100' × 80') and a triangle (base 60', height 40'). What is the total area?