A California investor is using the Gross Rent Multiplier (GRM) to estimate the value of a duplex in Long Beach. The duplex generates $4,200 per month in total rent. Three comparable sales in the Long Beach market show GRMs of 16.5, 17.0, and 17.5. Using the average GRM, what is the estimated value?
Correct Answer
A) $856,800
Step 1: Annual Gross Rent = $4,200/month × 12 = $50,400. Step 2: Average GRM = (16.5 + 17.0 + 17.5) / 3 = 51.0 / 3 = 17.0. Step 3: Value = Annual Rent × GRM = $50,400 × 17.0 = $856,800.
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Related Topics & Key Terms
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Related Concepts
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
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Previous Question
A 4-unit apartment building in Sacramento has monthly rents of $1,500 per unit. The submarket vacancy rate is 5%. Annual operating expenses are $28,800. The prevailing cap rate for comparable properties is 6%. Using the income approach (direct capitalization), what is the estimated value of the property?
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An appraiser is valuing a Los Angeles apartment building subject to the LA Rent Stabilization Ordinance (RSO). Current contract rents are below market due to long-term tenancies. Which approach to rent is MOST appropriate when applying the income approach to this property?