What is a GRM and Why Should Every Storage Investor Know How to Use It

Self storage investing, like all investing, is a numbers game. As such, there are a bunch of formulas that come in handy when you are out there trying to find your first or next storage deal. 

One of the formulas that I use first whenever I am trying to figure out if a particular property has potential is something called the GROSS RENTU MULTIPLIER (or GRM for short). The gross rent multiplier is probably the most simplistic formula that I can share with you. But don't let that fool you. It is also Incredibly helpful. I use it all the time; And it can be very useful in understanding the metrics of any property whether it be an existing property, a conversion play or ground up development. It can also help you fill in missing pieces when you don't yet have all the data you'd like to have to properly analyze a property. The formula itself is quite simple. 

Boiled down, the gross rent multiplier or GRM is found by dividing the purchase price by the gross annual rents. Let's look at a quick example. Let's say a small property has an asking price of $213,000 and that the gross potential annual rent (the most money the property could bring if completely Full throughout the year) is $60,000. 

$213,000 divided by 60,000 is 3.55.

Ok, so that doesn't mean too much unless we know what a “good GRM” is, right? Based on my experience buying millions of dollars in storage over the last 8 years, I will tell you that a GRM less than 5 piques my interest. At that level, I'm not jumping out of my chair but I am intrigued. There could be some potential and I will usually poke around a little more to see if the scales start to tip toward or away from the deal.

Once the GRM dips below 4 though, it becomes very interesting to me. Diving too deep into why exactly that is, is a bit beyond the scope of this humble little blog of mine but It relates to the way this number, the GRM, relates to the other industry standards that exist (things like income:expense ratio which I've explored in a prior post).

Simply put, when you have a GRM under four, the ROI is likely going to be pretty darn healthy!

Hopefully that makes sense. It's relatively straightforward. But again, don't let that fool you. We can apply this formula in a lot of ways. For instance, if we are looking at a property where the owner wants us to make an offer without presenting an asking price (annoying but it does happen), we can use our target GRM to reverse engineer a ballpark value for the property. 

Perhaps I will explore this idea more in depth in a future post. In the meantime, I hope you found this helpful and invite you to join me and a bunch of other Storage Investors in a Private Membership site that we have. You can gain instant access to a bunch of FREE Video content right now (including a deeper dive into a more sophisticated application of GRM) by enrolling in The Storage Rebellion University.