GRM vs. Cap Rate

[Russell W.]

When determining the value of a 3-4 unit property, which is more useful- the Gross Rent Multiplier or the Capitalization Rate? What do you guys prefer? Why? 

I'm looking at listings to practice "running the numbers" ahead of doing my first deal and am interested in how you all determine an offer price. Thanks for the help!

[Ola Dantis]

Hey Rusty Whitney why not use both? These are assets and the more metrics you have the more informed your decisions are.

Personally, I don't think these are mutually exclusive. As a Multifamily investor, I use both numbers to make decisions.

GRM is calculated based on the GSI [Gross SCHEDULED Income] and not the current rents. Yet, this metric does have its merits.

So I'd advice you to always use actual rents and be cognizant of the leases and when they expire.

There is another metric called Rent-to-Value ratio. If a property is, say, $100,000, you should expect that the rent shouldn't be anything less than $800/month. So the RTV is 0.8%; however, if you're able to get >= 1% then even better.

Good luck! Thanks! - Ola