A property sells for $220,000 and generates monthly rent of $1,600. What is the Gross Rent Multiplier (GRM)?
Correct Answer
D) 138
The Gross Rent Multiplier (GRM) is calculated using the formula: GRM = Sale Price ÷ Monthly Rent. In this case: GRM = $220,000 ÷ $1,600 ≈ 137.5, which rounds to 138. The GRM is a quick valuation tool used in the income approach to estimate a property's value relative to its rental income. A lower GRM generally indicates a better investment relative to rental income. It is most useful when comparing similar income-producing properties in the same market.
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Related Concepts
Commission splits refer to the division of the total real estate commission among the listing and selling brokerages, and then between each broker and their respective agents. Commission rates and splits are always negotiable.
Determining ownership days involves calculating the number of days each party (buyer and seller) owned the property during the relevant period (usually a year). This calculation is crucial for accurate proration.
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.
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