How to calculate the gross rent multiplier (GRM) for a rental property
The gross rent multiplier is the purchase price divided by the gross annual rent the property brings in. A $1,200,000 building with $120,000 of yearly rent has a GRM of 10. It is a fast way to compare similar buildings, but it ignores expenses and vacancy, so use it to shortlist and use NOI to decide.
The formula, step by step
GRM is the simplest value ratio in rental real estate. It answers one question: how many years of gross rent would it take to equal the price? A lower number means you pay less for each dollar of rent.
- Take the purchase price, or the asking price if you are still shopping.
- Add up the gross rent for a year. Use the scheduled rent from the rent roll: every unit's monthly rent times twelve.
- Divide the price by the yearly rent.
Example a made-up 10-unit building is listed at $1,200,000. Each unit rents for $1,000 a month, so yearly rent is 10 units times $1,000 times 12, which is $120,000. GRM is $1,200,000 divided by $120,000, which is 10.0.
You can run it backwards to estimate a price. If similar buildings in the same area trade near a GRM of 10, a building with $96,000 of yearly rent would be worth about $960,000 on this one measure alone.
Which rent counts
Sellers and brokers often quote GRM using rent they hope to collect. Ask which rent was used, because the answer moves the ratio a lot.
- Scheduled rent: what the units are charged today, whether or not they are occupied. This is the usual input and the cleanest one to check against the rent roll.
- Actual collected rent: what really arrived, after vacancy and unpaid rent. It is a better picture of the building but harder to compare between sellers.
- Market rent: what units could rent for after a rent increase. Never use it for the ratio on an existing deal unless you label it, since you have to earn that rent first.
The IRS defines rental income broadly. IRS Publication 527 says rental income is any payment you receive for the use or occupation of property, and lists advance rent and lease cancellation payments among the items. For a price ratio, though, keep to the regular monthly rent so two buildings are measured the same way.
Using GRM to compare buildings
GRM works best when the buildings are alike: same town, same size range, similar age and similar tenant type. A gross multiplier tells you nothing across a luxury building and a small older one, because their costs per dollar of rent are very different.
| Building | Price | Yearly rent | GRM |
|---|---|---|---|
| A | $1,200,000 | $120,000 | 10.0 |
| B | $900,000 | $80,000 | 11.3 |
| C | $1,500,000 | $150,000 | 10.0 |
Example with made-up numbers. Building B's GRM is $900,000 divided by $80,000, which is 11.25, shown rounded.
On GRM alone, A and C look equal and B looks more expensive. That is only a starting point. Two buildings with the same GRM can earn very different profit.
What GRM leaves out
GRM ignores every cost of running the building: property tax, insurance, repairs, utilities the owner pays, management and vacancy. Here is what that does to two buildings with the same price and the same rent.
Example Building X and Building Y both cost $1,200,000 and both have $120,000 of yearly rent, so both have a GRM of 10. X spends $60,000 a year to operate, so its net operating income is $60,000, a cap rate of 5.0%. Y spends $42,000, so its NOI is $78,000, a cap rate of 6.5%. Same GRM, very different building.
That is why serious buyers move from GRM to NOI and the cap rate once a building makes the shortlist. GRM is a filter. NOI is the decision.
How DoorKeeping handles it
Ask Claude or ChatGPT for your rent roll through DoorKeeping and you have the scheduled rent for every unit, which is the number the ratio needs. For a building you already own, ask for net operating income by property over any date range and compare it to what you paid. Rent and payments stay in your own bank accounts. It gives no investment advice, so treat the ratios as a way to ask better questions.
Sources
Questions
- What is a good gross rent multiplier?
- There is no single good number. It depends on your market, so compare against similar buildings sold nearby. A lower GRM means a lower price for each dollar of rent.
- Is GRM the same as cap rate?
- No. GRM uses gross rent and the price. The cap rate uses net operating income after expenses and the price. Cap rate says more about profit.
- Should I use monthly or yearly rent?
- Use yearly rent for the usual GRM. Some people use monthly rent and call it a gross rent multiplier too, so check which one a listing means before comparing.
- Does GRM include vacancy?
- Not when it uses scheduled rent. If you use rent actually collected, vacancy is already inside the number. Say which you used.