The GRM is simpler than the full income capitalization approach because it uses gross rent rather than net operating income and does not account for operating expenses. To calculate GRM: GRM = Sale Price / Gross Rent. To estimate value: Value = Gross Rent x GRM. A lower GRM generally indicates a better investment.
A comparable duplex sold for $240,000 and generates $2,000 per month in gross rent. GRM = $240,000 / $2,000 = 120. If a similar duplex generates $2,200/month, its estimated value is $2,200 x 120 = $264,000.
Memorize both formulas: GRM = Sale Price / Gross Rent and Value = Gross Rent x GRM. Remember that GRM uses gross rent (not net income) and does not account for expenses. Be careful whether the question uses monthly or annual rent.
Related Terms
Related Concepts
The capitalization rate (Cap Rate) is the rate of return on a real estate investment based on its expected income.
In real estate, property value can be estimated by dividing the Net Operating Income (NOI) by the Capitalization Rate (Cap Rate).
Converting a percentage to a decimal involves dividing the percentage value by 100.
Monthly interest is the portion of the total annual interest that is paid or accrued each month.
Annual interest is the total amount of interest charged on a loan or investment over a year.
Frequently Asked Questions
Study This in Your State
Gross Rent Multiplier (GRM) may have state-specific rules. Choose your state to study Real Estate Math with localized content: