How to calculate gross rent multiplier
The gross rent multiplier is a quick way to compare rental properties using only price and rent.
The formula
GRM = property price ÷ gross annual rent
Worked example
A $400,000 property that rents for $36,000 a year has a GRM of 11.1.
How to use this calculator
Enter the property price and the gross rent, for the period the field asks for. You can also enter a market GRM to compare against. The gross rent multiplier calculator shows the GRM as a single number you can set beside other listings, along with the gross rent per year, the value at the market GRM and the monthly rent as a share of the price.
What the result means
GRM tells you how many years of gross rent it would take to equal the price. A GRM of 11.1 means the price is 11.1 times one year of rent. A lower number means you pay less for each dollar of rent, and a higher number means you pay more.
The number only makes sense next to other properties of the same type in the same area. A GRM that looks high in one city can be normal in another, so compare like with like.
GRM also ties to the 1% rule, a rule of thumb that says monthly rent should be about 1% of the price. A $400,000 property that meets it rents for $4,000 a month, or $48,000 a year, which is a GRM of about 8.3.
More examples
Here are three example properties compared by GRM.
| Property | Price | Gross annual rent | GRM |
|---|---|---|---|
| A | $400,000 | $36,000 | 11.1 |
| B | $350,000 | $33,600 ($2,800 a month) | 10.4 |
| C | $525,000 | $42,000 | 12.5 |
Property B has the lowest GRM, so it brings in the most rent for its price. Property C costs the most per dollar of rent.
Using GRM to estimate value
Turn the formula around to price a property from its rent. If similar rentals nearby sell at a GRM of 10, a property earning $36,000 a year is worth about $360,000. At a GRM of 12 the same rent supports about $432,000.
What changes the result
- Price. A higher price with the same rent raises GRM.
- Rent. Higher rent with the same price lowers GRM.
- Which rent you use. Rent a seller hopes to get gives a lower GRM than the rent tenants pay today. Use current rent unless you have good reason not to.
What GRM does not show
Two properties with the same GRM can earn very different profits, because GRM ignores costs. The 50% rule is a rough guide that says operating expenses take about half of the rent. Applied to the example, $36,000 of rent leaves $18,000 of net operating income, a 4.5% return on a $400,000 price before any loan payments. A building with higher taxes, older systems or owner-paid utilities would keep less.
Common mistakes
- Dividing price by monthly rent and comparing it with a GRM based on yearly rent.
- Comparing a single-family house with an apartment building, or properties in different markets.
- Using advertised rent for a unit that is empty or rented for less.
- Choosing a property on GRM alone without checking expenses and vacancy.
Related calculators
Once GRM has narrowed your list, work out income after expenses with the NOI calculator, then test the full deal, including the loan, with the rental property calculator and the cash-on-cash return calculator.
Frequently asked questions
Is a lower GRM better?
Generally yes. It means you pay less for each dollar of rent.
What does GRM leave out?
Expenses, vacancy and financing. Use cap rate for a fuller picture.
Can GRM estimate value?
Yes. Value = gross annual rent × the GRM of similar properties.
What is a good GRM?
There is no single good number. It depends on the local market and the property type, so compare a property’s GRM with recent sales of similar rentals nearby.
Should I use monthly or annual rent?
The GRM this calculator shows is based on annual rent. Some investors quote a monthly GRM, which is 12 times larger, so check which one a listing uses before you compare.
Does gross rent include other income?
You can add income such as parking or laundry fees, as long as you treat every property you compare the same way.
How does GRM relate to the 1% rule?
A property that meets the 1% rule earns 12% of its price in rent each year, which equals a GRM of about 8.3.