Gross Rent Multiplier (GRM)
The ratio of a property's sale price to its gross monthly (or annual) rental income. Used as a simplified income approach technique for residential properties. Value = Monthly Rent x GRM.
GRM is extracted from comparable sales by dividing sale prices by their gross monthly rents. If similar properties sell for 150 times their monthly rent, the GRM is 150. Applied to the subject's market rent, this produces a value indication. GRM is a simpler alternative to direct capitalization because it uses gross income rather than requiring a full operating expense analysis. However, GRM does not account for differences in operating expenses, vacancy rates, or management costs between properties. Form 1025 requires both GRM analysis and direct capitalization for 2-4 unit properties.
Related Terms
Income Approach
A valuation method that estimates a property's value based on the income it generates or is expected to generate.
Capitalization Rate (Cap Rate)
Cap RateThe ratio of a property's net operating income to its market value or sale price, expressed as a percentage.
Net Operating Income (NOI)
NOIThe annual income remaining after deducting all operating expenses from effective gross income, but before deducting debt service (mortgage payments) and income taxes.
Form 1025 (Small Residential Income Property)
1025The appraisal form for 2-4 unit residential properties, incorporating both the sales comparison approach and the income approach.
Market Rent
The rental income a property would most likely command on the open market, based on analysis of comparable rental properties in the area.
More in Income Approach
View allEffective Gross Income (EGI)
EGIPotential gross income minus vacancy and collection losses, plus other income (laundry, parking, late fees).
Discounted Cash Flow Analysis (DCF)
DCFA yield capitalization technique that estimates property value by projecting future cash flows (income minus expenses) over a holding period and discounting them to present value using a market-derived discount rate..
Vacancy Rate
The percentage of available rental units or space that is unoccupied at a given time.
Operating Expenses
The recurring costs of owning and operating an income-producing property, including property taxes, insurance, management, maintenance, utilities, and reserves for replacement.