Income Approacheasy8.2% of exam

A rental house sold for $396,000 and rents for $2,200 a month. Its monthly gross rent multiplier is:

Correct Answer

C) 180

Why this is correct: A monthly gross rent multiplier is the sale price divided by the monthly gross rent, with no deduction for vacancy, collection loss or operating expenses. Here $396,000 / $2,200 = 180. Why the other choices are wrong: '15, dividing by annual rent instead of monthly rent' uses the annual figure: $396,000 / $26,400 = 15. That is a valid multiplier, but it is the annual gross rent multiplier, and the question asks for the monthly one. '225, dividing by rent net of a 20% vacancy and collection loss' reduces the rent to $1,760 first, giving $396,000 / $1,760 = 225; deducting anything from the rent breaks the gross in gross rent multiplier and, note, it raises the multiplier rather than lowering it. '165, dividing by a rent grossed up to $2,400 for owner-paid utilities' uses a rent the stem never states: $396,000 / $2,400 = 165. Exam tip: A GRM is only meaningful if the subject and the comparables use the same rent basis. Check monthly against annual before you divide, since the two answers differ by a factor of 12.

Answer Options

15, dividing by annual rent instead of monthly rent

225, dividing by rent net of a 20% vacancy and collection loss

180

165, dividing by a rent grossed up to $2,400 for owner-paid utilities

Why This Is the Correct Answer

The stem supplies a monthly rent of $2,200 and asks for the monthly multiplier, so the division is $396,000 / $2,200 = 180. Nothing is deducted from the rent, because a gross rent multiplier is built on gross rent by definition. The answer is a bare ratio, not a dollar figure, and it carries no units.

Why the Other Options Are Wrong

Option A: 15, dividing by annual rent instead of monthly rent

$396,000 / $26,400 = 15 is a real and commonly used figure, but it is the annual gross rent multiplier. Reporting it in answer to a question about the monthly multiplier is a units error of exactly twelve times. The two are never interchangeable between a subject and its comparables.

Option B: 225, dividing by rent net of a 20% vacancy and collection loss

Netting a 20% vacancy and collection loss out of the rent gives $1,760, and $396,000 / $1,760 = 225. Two things are wrong: gross rent multipliers use gross rent, and shrinking the denominator inflates the multiplier, so this method also moves the answer in the direction most candidates do not expect.

Option D: 165, dividing by a rent grossed up to $2,400 for owner-paid utilities

$396,000 / $2,400 = 165, but $2,400 is not the rent the stem gives. Grossing rent up for owner-paid utilities is a legitimate step in an expense analysis, not in a gross rent multiplier, and inventing a rent figure abandons the data supplied.

Gross means untouched

Gross rent multiplier: the word gross is a promise that nothing has been taken out. No vacancy, no collection loss, no taxes, no management. Price over rent, exactly as stated, and match the period on both sides.

How to use: Before dividing, circle the rent figure and write M or A beside it for monthly or annual. Then check which one the question asked for. If they disagree, multiply or divide by twelve before you do anything else.

Exam Tip

Any answer that shows the rent being reduced before the division is wrong in a GRM question, and it will usually be the largest multiplier on the page.

Common Mistakes to Avoid

-Mixing monthly and annual rent between the subject and the comparables
-Deducting vacancy or expenses before computing the multiplier
-Treating the multiplier as a value rather than a ratio

Concept Deep Dive

Analysis

The gross rent multiplier is the crudest of the income tools: one division, no expense analysis, no vacancy deduction. Its usefulness rests entirely on consistency, because the multiplier itself has no absolute meaning. A multiplier of 180 and a multiplier of 15 can describe the same property, differing only in whether the divisor was a month's rent or a year's. The same logic bars any netting: the moment vacancy, collection loss or an expense comes out of the rent, the ratio stops being a gross rent multiplier and stops being comparable to multipliers derived the standard way.

Background Knowledge

You need the definition of the gross rent multiplier as sale price divided by gross rent, the distinction between the monthly form used for residential rentals and the annual gross income multiplier used for commercial properties, and the rule that the multiplier is applied to the subject's own gross rent on the same basis from which it was derived.

Real-World Application

An appraiser valuing a single-family rental pulls four recent rental-house sales, computes each price over its monthly rent, and finds multipliers of 176 to 184. Applying 180 to the subject's $2,200 rent supports a value indication of $396,000 as a check on the sales comparison approach.

gross rent multipliermonthly rentgross income multiplierincome approachrent basis

Was this explanation helpful?

People Also Study

Real Estate Market

13.6% of exam

Property Description

11.8% of exam

Land or Site Valuation

4.5% of exam

Sales Comparison Approach

16.4% of exam

Cost Approach

13.6% of exam

Previous Question

A house sold for $438,000 with monthly rent of $2,400. The monthly gross rent multiplier is:

Next Question

When analyzing income and expense data for a multi-tenant office building to develop an opinion of market value, an appraiser includes revenue from parking fees collected by the owner. In the appraiser's income and expense analysis, these parking fees should be treated as part of:

Income Approach Questions Practice Interactively