Gross Rent Multiplier

[Steve Wightman]

Greetings!

I'm analyzing 2-4 unit multi-family properties. I understand from BP podcasts on how to use the BP calculators that cap rates are rarely used on these smaller MF deals. That said, is the GRM a good way to do a "down & dirty" analysis to determine if a deeper dive into the numbers is warranted? If so, how would you suggest I find out what the GRM is for my market (Orlando, FL) so I can determine if I have a good deal to analyze further? Thank you in advance for your input...S

[Ned Carey]

@Steve Wightman a gross rent multiplier is the most crude method to evaluate a property. It is only good for pre-screening deals.

I have to disagree with the above. Comps are important on 1-4 unit properties only to make sure you can get an appraisal to get financed.

If you are buying the property as an investment comps don't matter. You need to evaluate based on the cash flow.Also on any future increases in cash flow that may affect future value. That is why you are buying it. Just because other people are willing to pay to much doesn't mean you or I should.

So how do you value a property when you don't know the numbers? Either through due diligence on the current property - the owners records and tax returns. Or through your general market knowledge. Learn from other deals and other investors what typical rents are and what typical costs are.