- Getting the GRM for recent sold properties:
Market Value / Annual Gross Income = Gross Rent Multiplier (GRM)
Property sold for $750,000 / $110,000 Annual Income = GRM of 6.82
- Estimating value of property based on GRM:
Let's say that you did an analysis of recent comparable sold properties and found that, like the one above, their GRM's averaged around 6.75. Now you want to approximate the value of the property being considered for purchase. You know that its gross rental income is $68,000 annually.
GRM X Annual Income = Market Value
6.75 X $68,000 = $459,000
If it's listed for sale at $695,000, you might not want to waste more time in looking at it for purchase.
- Don't get too reliant on this calculation, but it can be used to narrow down a crowded field of possible properties.
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