What does Gross Rent Multiplier

[RJ Emmett]

Hello, 

Newbie here.  I was searching through the RMLS and trying to get some practice in on looking at buying a rental property.  I'm not ready to buy, but I am pretending that I am to gain some understanding on how to figure out what is a good deal and what is a bad deal.

I came across several listings with Multiple unit buildings with a line in the description, "Gross Rent Multiplier".  This particular building was a duplex with each unit at 3bed, 2bath, 1500sq.  The Gross rent multiplier was 31.24.

Can someone explain what Gross Rent Multiplier means?

Please and Thank you's in advance!

[Cody L.]

Originally posted by @RJ Emmett:

Hello, 

Newbie here.  I was searching through the RMLS and trying to get some practice in on looking at buying a rental property.  I'm not ready to buy, but I am pretending that I am to gain some understanding on how to figure out what is a good deal and what is a bad deal.

I came across several listings with Multiple unit buildings with a line in the description, "Gross Rent Multiplier".  This particular building was a duplex with each unit at 3bed, 2bath, 1500sq.  The Gross rent multiplier was 31.24.

Can someone explain what Gross Rent Multiplier means?

Please and Thank you's in advance!

Say a home rents for $1000/month, and costs $100k (that was my fav 'go to' numbers to buy when I started). You'd have $12k/year of rent, and $100k purchase price. That would be a GRM of 8.3 (100,000 divided by 12,000).

The lower the better.  Anything under 10 and the deal should cash flow just fine.  So you can stick with 10 as your upper limit and adjust based on how nice the deal is, how big, where it is, etc.  i.e., accept a 10 if you're in a good area, and expect better as you go to worse areas.

The property I closed on last month was $2.4m and has $50k/month in rent (it's all bills paid, so that number should be lowered to better reflect against a non all bills property but whatever). That's a GRM of 4. Which is crazy good. The property I closed on yesterday was $4m and brings in $60k/month. It's not all bills paid. That's 5.56x. Still very very good.

You see the "1% rule" here all the time. A 1% rule will give you a GRM of 8.3 (per my first example). Thus, 10 should be the MOST you'd ever want to pay. That is, if your goal is cash flow.

I don't see how something could be 31? To put that in perspective, to be a 31 GRM you'd have to pay $372k for a home that rented for only $1000/month.