Gross Rent Multiplier

[Aaron Ross]

What is a gross rent multiplier?  Why is it important and how do I use it effectively?

Thanks in advance -

Aaron

[Michael Seeker]

@Aaron Ross - GRM is a tool used to value real estate and is similar to CAP rates only it assumes expenses on all buildings will be pretty much the same.

I'll give you an example from where I invest - most GRM's are right around 100 which means if your monthly rent is $1000, then the property is probably worth about $100,000. This is useful to you (the investor) in helping to learn what property is worth in a particular area and to be able to quickly assess deals.

When starting out, I used to run expected expense/income numbers on every single property I looked at. Well, after doing that for a while, you start to see that if the rents are $1000 and the seller is asking $150,000 and typical GRM is 100 then it's a waste of time.

Conversely, if the rents are $1000 and list price is $100,000 but rents could easily be bumped to $1500 well you can quickly build $50K in equity.