Where does the GRM or Gross Rent Multiplier come from? I mean i know how to plug it in i’m just curious as to where it comes from. Who says it’s 3.3 or 6.5 or whatever it is?
Thanks,
Jon
Gross Rent Multiplier - the sales price divided by the gross annual rental rate.
It’s derived from a formula, not plucked from air…
Keith
Excellent thank you Keith!!! That makes alot more sense now. Sorry I sound kind of stupid in here I’m just learning all of this! All of the books i’ve been reading show me how to plug it into the formula but they failed to mention where the GRM itself came from.
Thank You,
Jon
Never apologize for not knowing something (well, unless we’ve told you multiple times!)…ALWAYS ask!
Keith
Keith,
Is a higher GRM better?
A lower GRM is better. It means that you are getting higher rent per dollar invested.
Example…you pay $100K for a property that generates $12K in rents. The GRM is 8.33. If you buy the property for $80K with the same rents coming in the GRM is 6.67.
Keith
if you’re the seller, a higher GRM is better. also, if you’re buying a rental, make sure the rental agreements aren’t fictitious or way out of line with market rents in the area.
Got Excel?
I track & plug rental information into a spreadsheet;
Property Address, Zip Code, Sales Price, Monthly Rent, GRM, Square Footage, Rent/SF, Price/SF, Bedrooms, Rent/Bdrms, Baths, Style (Design), Year Built, Quality of Construction, Condition, Garage, Lot Size, and any additional notes.
Once you’ve gathered enough information you’ll be able to tell at a glance @ the GRM (and other information) whether a property is listed competitively & worth a look, or if it’s overpriced & a waste of your time.
You’ll also begin to notice by tracking GRM’s that being a slum lord pays.
-Infowell
Not to put to fine a line on it… actually the Gross Rent Multiplier uses Gross Scheduled Income which is the meximum potential rental income (i.e. no vacancy or credits) and miscellaneous income (laundry, vending machines, etc.) as well. That is:
GRM = Property Value / GSI