What is the Gross Rent Multiplier (GRM) for Real Estate Investment properties

Years ago when I first started investing in Real Estate (Dave Crowell American Dream Realty) I read numerous books on the various Real Estate Investment terms such as GRM, CAP Rate, and ROI.  Hence, in today's article I will focus on the term GRM or Gross Rent Multiplier.

A gross rent multiplier or GRM is a formula used by many real estate investors to determine valuation of investment income properties.  The formula for the GRM: 

Sales Price/Gross Annual Rental Income = GRM

For example, assume a purchase price on a duplex was $500,000 and the gross annual rent for both units was $50,000, to determine the GRM you would divide $500,000 by $50,000 = 10.  Hence, the Gross Rent Multiplier is 10. 

Therefore, a Real Estate Investor can determine rental property valuation by the GRM and use the GRM to compare different investment properties.  The theory is the lower the GRM the better valuation on the anticipated investment.  However, other factors such as expenses will require the prudent real estate investor to use other investment formulas such as the CAP Rate and ROI to accurately value an real estate investment.

Interestingly, in most parts of the country a GRM of 10 is considered the norm on investment properties.  However, in hot markets such as Southern California a GRM of 10 is non existent.

For more information or to buy or sale Real Estate in Ventura County and all of Southern California please contact Dave Crowell a top producing Real Estate Agent in Ventura County, American Dream Realty, at 805-300-3345 or visit my website at www.mycamarilloproperties.com