A property sells for $220,000 and generates monthly rent of $1,600. What is the Gross Rent Multiplier (GRM)?
Correct Answer
B) 138
The Gross Rent Multiplier (GRM) is calculated by dividing the property's sale price by its monthly gross rent: GRM = Sale Price ÷ Monthly Rent = $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 the rent it generates. A lower GRM generally indicates a better investment relative to rental income. It does not account for vacancies, expenses, or financing.
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Related Topics & Key Terms
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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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- → Annual property taxes on a home are $2,400. The property closes on June 1. Using a 360-day banker's year and assuming taxes are paid in arrears, what is the amount the seller owes the buyer as a tax proration credit?
- → A buyer purchases a home for $200,000 and makes a 15% down payment. What is the loan amount?
- → A property is assessed at $190,000 with a mill rate of 20. What is the annual property tax?
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- → A property is purchased for $175,000 and appreciates at 4% per year compounded annually. What is the property's value after 2 years?
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- → Annual property taxes are $3,600. The property closes on July 1 and taxes are paid in arrears. Using a 360-day year (30 days per month), what is the seller's proration debit (amount the seller owes the buyer at closing)?
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