An investor is valuing a small rental property listed at $600,000 that produces gross monthly rent of $2,900. What is the gross rent multiplier (GRM) on a monthly rent basis?
Correct Answer
A) 206.90
The gross rent multiplier is the price divided by the gross rent, and the answer carries the basis of the rent figure used. On the monthly basis this question asks for, $600,000 ÷ $2,900 = 206.90, meaning the price equals roughly 207 months of gross rent. Dividing instead by annual rent of $34,800 gives 17.24, an annual-basis multiplier, which is a different number for the same property. A multiplier is only comparable with others computed on the same basis, so the basis has to be settled before the division.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Converting a percentage to a decimal involves dividing the percentage value by 100.
In real estate, property value can be estimated by dividing the Net Operating Income (NOI) by the Capitalization Rate (Cap Rate).
Proration is the process of dividing expenses or income between the buyer and seller at the closing of a real estate transaction. This ensures each party pays or receives only their fair share based on the period of ownership.
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