A property sold for $450,000 and generates $3,750 in monthly gross rent. What is the gross rent multiplier (GRM)?
Correct Answer
A) 10.0
GRM = Sale Price ÷ Monthly Gross Rent. $450,000 ÷ $3,750 = 120. However, this appears to be asking for annual GRM: $450,000 ÷ ($3,750 × 12) = $450,000 ÷ $45,000 = 10.0.
Why This Is the Correct Answer
Option A (10.0) is correct because it represents the annual GRM calculation. First, convert monthly rent to annual: $3,750 × 12 = $45,000. Then divide the sale price by annual rent: $450,000 ÷ $45,000 = 10.0. This means the property sold for 10 times its annual gross rent, which is a reasonable GRM for most markets.
Why the Other Options Are Wrong
Option B: 120
Option B (120) represents the monthly GRM calculation ($450,000 ÷ $3,750 = 120), but the question context and other answer choices indicate it's asking for annual GRM, making this incorrect.
Option C: 12.0
Option C (12.0) might result from calculation errors, such as dividing monthly rent by sale price instead of the reverse, or other mathematical mistakes in the GRM formula.
Option D: 100
Option D (100) appears to be a distractor with no clear mathematical relationship to the given figures, possibly representing a common wrong calculation or misunderstanding of the GRM formula.
GRM = Get Real Money
Remember 'GRM = Get Real Money' where G=Gross income, R=Rent (annual), M=Multiplier. Think 'Sale Price over Annual Rent = Multiplier' or use the acronym SPAM: Sale Price ÷ Annual Monthly rent × 12.
How to use: When you see GRM questions, immediately think 'SPAM' - convert monthly rent to annual (×12), then divide sale price by that annual figure. If answers are around 8-15, it's likely annual GRM; if around 100-200, it's monthly GRM.
Exam Tip
Always check if the question provides monthly or annual rent, and look at answer choices to determine which GRM type is expected - annual GRM typically ranges 8-15, while monthly GRM ranges 100-200.
Common Mistakes to Avoid
- -Forgetting to convert monthly rent to annual rent
- -Dividing rent by sale price instead of sale price by rent
- -Confusing monthly GRM with annual GRM based on answer choices
Concept Deep Dive
Analysis
This question tests understanding of Gross Rent Multiplier (GRM) calculation, which is a key investment analysis tool in real estate appraisal. The GRM measures the relationship between a property's sale price and its gross rental income, providing a quick comparison metric for similar properties. There are two types of GRM: monthly GRM (sale price ÷ monthly rent) and annual GRM (sale price ÷ annual rent), with annual GRM being more commonly used in practice. The question's wording and answer choices suggest it's asking for annual GRM, which requires multiplying monthly rent by 12 before dividing into the sale price.
Background Knowledge
Gross Rent Multiplier is calculated as Sale Price ÷ Gross Rental Income, and can be expressed as either monthly or annual. Annual GRM is more commonly used because it provides a standardized comparison metric that's easier to benchmark against market data and industry standards.
Real-World Application
Appraisers use GRM to quickly screen comparable sales and assess if a property's price is reasonable relative to its income potential. A GRM of 10.0 means it would take 10 years of gross rent to equal the purchase price, helping investors compare properties and make quick investment decisions.
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