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How to Calculate Gross Rent Multiplier (GRM)

Jerry Norton

Feb 20, 2024

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Even for the most experienced real estate investors, choosing a rental property can be difficult.

After all, no one in the industry has a crystal ball.

Wouldn't it be great if you could take the guess work and anxiety out of real estate investing? 

You can by using the gross rent multiplier, or GRM, formula.

Gross rent multiplier is a powerful formula that can give you insight into the profitability of a rental property in the months and years to come.

If you aren't already using GRM, it's a formula that you need to have in your back pocket. That's why, in this article, we’ll break down:

  • How to calculate GRM
  • What a "good" GRM is
  • GRM examples
  • And more

Let’s get started! 

What is Gross Rent Multiplier?

Gross Rent Multiplier, also known as the GRM, is a metric that can be used to determine the value of an income-producing property based on its rental income potential. 

By providing a snapshot of a property's potential profitability, it can help you as an investor decide if a given property is right for you and your investment goals. 

But that’s not all. 

The GRM formula also provides a starting point for negotiations and can help an investor determine whether or not a property is priced fair or overvalued based on its rental income potential.

How to Calculate Gross Rent Multiplier

In order to calculate gross rent multiplier, you use the following formula: 

Gross Rent Multiplier = Property Purchase Price / Gross Annual Rental Income

First, you determine the property's purchase price or market value.

After that, you obtain the gross rental income, which is the total revenue generated from renting out the property.

Third, you divide the property's purchase price or market value by its gross rental income.

There you have it: the result is the Gross Rent Multiplier (GRM).

What is a Good GRM?

While it depends upon the property itself and the location of the property, a good GRM will generally range between 4 and 7. 

What a High GRM Means

A high GRM — for example, 8 or above — indicates that the property may be overpriced compared to the rental income it generates presently and in the future. 

A high GRM means that it will take longer to recoup your initial investment, which isn't good news for real estate investors.

What a Low GRM Indicates

On the other hand, a low GRM — such as 4 or below — suggests that the property may be undervalued or has a tremendous potential for generating rental income. 

Properties with low GRM values are sought after, because they offer higher returns and the potential for a much quicker ROI.

Gross Rent Multiplier Examples 

Let's take a look at a few examples of how GRM can be used.

Use GRM to determine the profitability of a property.

Let’s say that you’re trying to decide between two potential rental properties: Property A and Property B.

Both seem advantageous, and you’re ready to pull the trigger on one of them. 

Your gut is telling you Property A, but before you make a decision, you run the GRM formula. 

Property A has a GRM of 12, while Property B has a GRM of 8. 

Based on this new information, it’s clear that Property B has a higher rental income potential compared to Property A. Plus, you can recoup your investment much faster by choosing Property B. 

Determining Property’s Worth

GRM can also be used to determine a property’s worth. 

Let's say you're interested in buying a multi-unit residential property with a gross rental income of $100,000 per year. 

By using the GRM of similar properties in the area — let's assume it is 5 — the investor can estimate the value of the property to be around $500,000 ($100,000 x 5). 

This estimation can help you determine if the asking price is fair, overvalued, or somewhere in between. 

The Bottom Line: Gross Rent Multiplier

The most successful real estate investors don’t rely on gut feelings or intuition. Instead, they take the guess work out of it and rely on metrics like GRM to tell them which rental property will be the most profitable — and how soon they can experience a return on investment.

Whether you’re a new investor or have a few real estate deals already under your belt, use the Gross Rent Multiplier formula (GRM) in your next deal so that it can be your most profitable decision yet.