Gross Rent Multiplier (GRM)
Definition
The gross rent multiplier (GRM) is a quick method for estimating the value of income-producing property by multiplying the property's gross rent by a factor derived from comparable sales. GRM = Sale Price / Gross Rent.
Example
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.
Exam Tip
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 Math Terms
Capitalization Rate (Cap Rate)
The capitalization rate (Cap Rate) is the rate of return on a real estate investment based on its expected income.
Property Value (based on Cap Rate)
In real estate, property value can be estimated by dividing the Net Operating Income (NOI) by the Capitalization Rate (Cap Rate).
Percentage to Decimal Conversion
Converting a percentage to a decimal involves dividing the percentage value by 100.
Monthly Interest Calculation
Monthly interest is the portion of the total annual interest that is paid or accrued each month.
Annual Interest Calculation
Annual interest is the total amount of interest charged on a loan or investment over a year.
Calculating Daily Rate
Daily rate calculation involves determining the cost or income per day by dividing the total amount by the number of days in the period (usually a year or a month). This is a fundamental step in proration.
Frequently Asked Questions
Test Your Math Knowledge
Practice with exam-style questions to make sure you can apply Gross Rent Multiplier (GRM) and other math concepts.