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Gross Rent Multiplier

A Fast “Back-of-the-Napkin” Valuation Tool Based on Gross Rent

 

 

Gross Rent Multiplier (GRM) is a simple valuation metric investors use to quickly compare income-producing properties. It measures the relationship between a property’s purchase price and its gross annual rental income (before vacancy and operating expenses). GRM is especially useful as an early screening tool—helping you spot properties that may be overpriced or underpriced relative to similar assets in the same market.

The GRM Forumla is: 

GRM = Purchase Price ÷ Gross Annual Rental Income

GRM tells you, in a rough sense, how many “years of gross rent” it would take to equal the purchase price—ignoring expenses, financing, and vacancy.

For example: 

If a property is listed for $500,000 and produces $50,000 in gross annual rent:

  • GRM = $500,000 ÷ $50,000 = 10

A GRM of 10 means the price is about 10 times the property’s annual gross rent.

How Investors Use GRM

GRM is most helpful when you use it to compare similar properties in the same market:

  • If most comparable properties trade around a GRM of 9, and you’re looking at one priced at 11, it may be expensive unless there’s a reason (better condition, higher rent growth potential, superior location, etc.).

  • In general, lower GRM can suggest a more attractive purchase price relative to rent—but only when the properties are truly comparable.

Limitations (What GRM does not tell you):

GRM is a quick filter, not a full analysis, because it does not account for:

  • Operating expenses (taxes, insurance, repairs, utilities, management)

  • Vacancy and collection losses

  • Capital expenditures (roofs, HVAC, major renovations)

  • Financing terms and debt service

  • Differences in tenant quality, lease structures, or property condition