A property sold for $450,000 and generates $3,200 per month in gross rental income. What is the gross rent multiplier (GRM)?
Correct Answer
A) 11.72
GRM = Sale Price ÷ Monthly Gross Rent. $450,000 ÷ $3,200 = 140.625. Wait, that's not right - let me recalculate: $450,000 ÷ ($3,200 × 12) = $450,000 ÷ $38,400 = 11.72.
Why This Is the Correct Answer
Option A (11.72) is correct because it uses the proper monthly GRM formula: Sale Price ÷ Monthly Gross Rent = $450,000 ÷ $3,200 = 140.625, which rounds to 140.6. However, the explanation shows this is actually the annual GRM calculation: $450,000 ÷ ($3,200 × 12) = $450,000 ÷ $38,400 = 11.72. The question asks for GRM without specifying monthly or annual, but given the answer choices, it's clear they want the annual GRM calculation. This demonstrates the importance of looking at answer choices to determine the expected calculation method.
Why the Other Options Are Wrong
Option B: 117.2
Option B (117.2) appears to be a decimal place error, possibly multiplying the correct answer by 10 or making an error in the division calculation.
Option C: 140.6
Option C (140.6) represents the monthly GRM calculation ($450,000 ÷ $3,200 = 140.625), which would be correct if the question specifically asked for monthly GRM, but the answer key indicates annual GRM is expected.
Option D: 1,406
Option D (1,406) appears to be a significant calculation error, possibly involving incorrect decimal placement or using the wrong mathematical operation entirely.
GRM GPS Navigation
Think 'GRM = Go Right to Monthly' - but if the answer choices are small numbers (under 20), you need to 'Go Right to Monthly, then Multiply by 12' to get annual. GPS = Gross ÷ Price ÷ Span (monthly or annual)
How to use: When you see a GRM question, first look at the answer choices - if they're large numbers (over 100), use monthly rent directly; if they're small numbers (under 20), convert monthly rent to annual rent first by multiplying by 12
Exam Tip
Always check the answer choices first to determine whether monthly or annual GRM is expected, as the question may not explicitly specify which calculation method to use
Common Mistakes to Avoid
- -Confusing monthly vs annual GRM calculations
- -Not looking at answer choices to determine which GRM method is expected
- -Making arithmetic errors in basic division calculations
Concept Deep Dive
Analysis
The Gross Rent Multiplier (GRM) is a quick valuation tool used in real estate to compare investment properties by measuring the relationship between a property's sale price and its gross rental income. GRM can be calculated using either monthly or annual gross rent, but it's crucial to be consistent and know which version is being requested. The monthly GRM divides the sale price by monthly gross rent, while the annual GRM divides by annual gross rent, resulting in significantly different numbers. This question tests the appraiser's ability to correctly identify which GRM calculation method to use and perform the arithmetic accurately.
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 GRM values generally indicate better investment opportunities, as the property generates more income relative to its purchase price, though market conditions and property types must be considered for meaningful comparisons.
Real-World Application
Appraisers use GRM to quickly screen comparable sales and rental properties, helping establish market ranges for income-producing properties like single-family rentals, duplexes, and small apartment buildings before conducting more detailed income capitalization analyses
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