Gross Rent Multiplier

What is a Gross Rent Multiplier ?

A Gross Rent Multiplier (GRM) is a capitalization method for calculating the rough value of a property based on an income approach method.

The Gross Rent Multiplier (GRM) formula for value is as follows:

Value = Annual Gross Income (Rents) (AGI) X Gross Rent Multiplier (GRM)

For Example:

AGR = $500,000

GRM = 8

Potential Property Value = AGI X GRM = $400,000

Obviously, the value of a property is a direct correlation to the GRM. Therefore, using an accurate value for the GRM is critical for determining an accurate property value.  The GRM variable can be found from a local appraiser who will calculate GRM's from comparable closed sales in the immediate area and then average them to one number.  They take the recent sales prices of the comparable properties in the area and divide them by the respective Gross Incomes.  The immediate area used for comparables surrounding most subject properties will fall into a narrow GRM gap.  However, GRM's can vary considerably depending on the location.  For an example; San Francisco, New York, and Miami will have a much higher GRM than a small town in the Midwest.