A property sold for $450,000 with annual gross income of $54,000. What is the gross income multiplier (GIM)?
Correct Answer
C) 8.33
Why this is correct: Gross Income Multiplier (GIM) = Sale Price ÷ Annual Gross Income. Here, $450,000 ÷ $54,000 = 8.33 (rounded). Why the other choices are wrong: 12.0 results from using monthly income ($450,000 ÷ $3,750). 4.5 comes from dividing income by price ($54,000 ÷ $450,000). 120 is off by a factor of ten. Exam tip: GIM uses annual gross income; GRM uses monthly gross rent.
Why This Is the Correct Answer
Option A (8.33) is correct because it follows the proper GIM formula: Sale Price ÷ Annual Gross Income. Calculating $450,000 ÷ $54,000 equals 8.33, which means it would take 8.33 years of gross income to equal the sale price. This is a reasonable GIM for most income-producing properties, typically falling within the 6-12 range for well-performing properties. The calculation is straightforward division with no additional adjustments or conversions needed.
Why the Other Options Are Wrong
Option A: 12.0
Option A (12.0) is incorrect because it represents the inverse calculation of Annual Gross Income ÷ Sale Price ($54,000 ÷ $450,000 = 0.12, then multiplied by 100 to get 12%). This would actually represent the gross income yield or capitalization rate percentage, not the gross income multiplier.
Option B: 4.5
Option B (4.5) is incorrect and appears to be a miscalculation, possibly from dividing the smaller number by a portion of the larger number or confusing the GIM with a different ratio entirely. This number is too low to represent a realistic gross income multiplier for this property.
Option D: 120
Option D (120) is incorrect and likely results from multiplying rather than dividing, or from using monthly income instead of annual income in an improper calculation. This number is unrealistically high for a gross income multiplier and would indicate a very poor investment.
GIM = Sale Price Goes Into Monthly (but use annual)
Remember 'GIM = Sale Price Goes Into Monthly' but flip it to annual! GIM = Sale ÷ Income (annual). Think 'How many YEARS of income equals the sale price?' The answer is always the bigger number divided by the smaller number.
How to use: When you see GIM questions, immediately identify the sale price (larger number) and annual income (smaller number), then divide large by small. If only monthly income is given, multiply by 12 first to get annual income.
Exam Tip
Always double-check whether the income given is monthly or annual - if monthly, multiply by 12 before calculating GIM. The GIM should typically be between 6-12 for reasonable properties.
Common Mistakes to Avoid
- -Confusing GIM (annual income) with GRM (monthly income)
- -Dividing income by sale price instead of sale price by income
- -Using monthly income without converting to annual income first
Concept Deep Dive
Analysis
The Gross Income Multiplier (GIM) is a fundamental ratio used in real estate valuation to quickly estimate property value based on its income-generating potential. It represents how many years of gross annual income it would take to equal the property's sale price, making it a useful comparative tool for analyzing similar income-producing properties. Unlike the Gross Rent Multiplier (GRM) which uses monthly income, GIM uses annual gross income, providing a broader perspective on the property's income performance. This metric is particularly valuable in the income approach to valuation and helps appraisers and investors quickly screen potential investments.
Background Knowledge
Gross Income Multiplier (GIM) is calculated by dividing the property's sale price by its annual gross income, while Gross Rent Multiplier (GRM) uses monthly gross income. Both ratios help appraisers compare similar properties and estimate values quickly, with typical GIMs ranging from 6-12 for most income properties.
Real-World Application
Appraisers use GIM to quickly compare similar rental properties in a market area. For example, if comparable properties have GIMs of 8-9, a property with a GIM of 12 might be overpriced, while one with a GIM of 6 might represent a good value or have other issues affecting its income potential.
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