# Gross Rent Multiplier

Suppose you want to buy an apartment building or obtain a commercial loan on a multifamily property.  You can quickly compute the value of any multifamily property, if you know that property’s Gross Scheduled Rent and the correct Gross Rent Multiplier for that area.  The Gross Rent Multiplier is a number, usually between 3 and 11, by which  you multiply the Gross (Annual Scheduled) Rents to obtain a rough estimate of the value of an apartment building.  Expressed algebraically:

Value of an Apartment Building = Gross (Annual Scheduled) Rents x Gross Rent Multiplier

Example #1:

Example #2:

# Real Estate Investing

The Gross Rent Multiplier (GRM) is a capitalization method used for calculating the approximate value of an income producing commercial property based on the property’s gross rental income.

To calculate the value of a commercial property using the Gross Rent Multiplier approach for valuation, simply multiply the Gross Rent Multiplier (GRM) by the gross rents of the property.

How to calculate the Gross Rent Multiplier (GRM):

In this example, the GRM for a property with a listing price of \$640,000 and \$80,000 in gross rental income is 8. Next, simply average the respective gross rent multipliers together and you will have a good indication of the local market GRM for your property type.

To calculate the Gross Rent Multiplier, divide the selling price or value of a property by the subject’s property’s gross rents.

The GRM calculation of value

Property Value = Annual Gross Rents X Gross Rent Multiplier (GRM)

\$640,000 = \$80,000 X 8 (GRM)

In this example – using a GRM of 8 – a property that generates \$80,000 a year in gross rental income has a value of \$640,000.

Calculate a GRM

To calculate a GRM, take the listed selling price and the annual gross rental income and divide one into the other, the equation looks like this:

GRM = Sales Price / Annual Gross Rents

8 = \$640,000 / \$80,000

The major difference in valuation between the income approach to valuation via the appraisal and the GRM approach to valuation is the former uses net income in the calculation of valuation while the latter uses gross income.

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