Gross Rent Multiplier not to exceed 8

[David Krulac]

Just read an article today saying that you should NEVER buy any income producing real estate that does not have a Gross Rent Multiplier (GRM) of more than 8.

iow, A property renting for $1,250 a month, or $15,000 a year should be purchased for no more than $15,000 X 8 = $120,000.

I've NEVER been a big fan of GRM! Even when I first started in real estate investing I never liked GRM. The chief reason that I don't like it is that it does not account for expenses, like high taxes, owner paying high utilities like heat, and electric. In my investing area yearly real estate property taxes can range from about 1.5% to 6% per year of assessed value. GRM doesn't account for that variant. Some buildings the owner pays for heat and electric, not insignificant here in the northeast with cold winters and currently 90 degree summers. A building where the owner does not pay any utilities, like SFH, has a quite different expense profile than a building where the owner (APT) provides heat, AC, electric, water, sewer, and trash. Insurance bills can vary between buildings, older buildings, and larger buildings usually have higher insurance bills. Also buildings owned by entities can have higher insurance bills. GRM does not account for any of these variables.

Yes, GRM can be used as a quick rule of thumb, but net operating income (NOI) which does account for high expenses is much more accurate indicator, imho.