Glossary
Gross rent multiplier (GRM)
Gross rent multiplier (GRM) is the purchase price divided by the gross yearly rent. A lower GRM means you pay less for each dollar of rent.
GRM is a quick way to compare rentals before you run the full numbers. It ignores expenses, vacancy and financing, so use it to sort deals, not to buy one.
The formula
GRM = price / gross yearly rent. Gross yearly rent is the monthly rent times 12, before vacancy or any expense.
- Price
- $240,000
- Monthly rent
- $2,000
- Gross yearly rent
- $24,000
GRM vs cap rate
Cap rate uses NOI, which takes out expenses, so it is the better measure of what a property earns. Two houses with the same GRM can have very different cap rates if one has high taxes or an HOA.
Get cap rate, cash flow and cash-on-cash in the rental property calculator.
Questions
What is a good gross rent multiplier?
Lower is better for a buyer, but a good GRM depends on the market. Compare it to similar rentals nearby, then check cap rate and cash flow.
Does GRM include expenses?
No. That is its main weakness. Cap rate and cash flow include them.
Written by Austin Frangoules | Updated
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