Transparent method
The formula
Worked example
Example inputs
How to interpret the result
GRM is a fast screening tool built from price and rent alone, completely blind to operating expenses, so two properties with the identical GRM can carry very different actual profitability once real expense ratios, one high, one low, get factored into a fuller analysis that GRM was never built to capture.
Before you rely on it
What to check
Use GRM only as a quick first screen to compare similar properties, then move to a fuller analysis including actual expenses before making any real decision.
The common error
Where people go wrong with gross rent multiplier calculator
Treating GRM as sufficient on its own to compare two properties' investment quality. It ignores operating expenses entirely, and two properties at the identical GRM can have very different actual profitability once real expenses are accounted for.
Sensitivity evidence
How property price changes the gross rent multiplier
| Property price | Gross rent multiplier | Annual gross rent |
|---|---|---|
| $360,000 | 7.50× | $48,000 |
| $405,000 | 8.44× | $48,000 |
| $450,000worked example | 9.38× | $48,000 |
| $495,000 | 10.31× | $48,000 |
| $540,000 | 11.25× | $48,000 |
Every input, tested
Which input moves the gross rent multiplier most
| Input | Tested from | To | Gross rent multiplier at each end | Swing |
|---|---|---|---|---|
| Property price | $405,000 | $495,000 | 8.44× to 10.31× | 1.88× (20%) |
| Monthly gross rent | $3,600 | $4,400 | 10.42× to 8.52× | 1.89× (20%) |
Two variables at once
Gross rent multiplier by property price and monthly gross rent
| Property price \ Monthly gross rent | $3,200 | $4,000 | $4,800 |
|---|---|---|---|
| $360,000 | 9.38× | 7.50× | 6.25× |
| $405,000 | 10.55× | 8.44× | 7.03× |
| $450,000 | 11.72× | 9.38× | 7.81× |
| $495,000 | 12.89× | 10.31× | 8.59× |
| $540,000 | 14.06× | 11.25× | 9.38× |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Property price | $450,000 |
| Monthly gross rent | $4,000 |
| Gross rent multiplier | 9.38× |
| Annual gross rent | $48,000 |
Where the inputs come from
Property price is the purchase or list price, and monthly gross rent is the total scheduled rent at full occupancy, multiplied by twelve for the annual figure. Use current market rent, not the seller's optimistic figure, and include only rent from the units you are buying. Compare properties of the same type, size and area, since the multiple depends on local price-to-rent levels and expense structures.
When the result stops applying
Two properties with the same GRM can have very different profits if one has higher taxes, insurance or maintenance. It uses gross rent rather than net income, so it can flatter properties with high expenses. It does not include financing. The multiple varies widely by city, so a good GRM in one market may be poor in another.
What to compare it with
Move to net figures with the NOI and cap rate calculators, and the one percent rule page for a related quick test. The rental yield calculator shows the same ratio as a percentage. The cash-on-cash and rental cash flow pages measure returns after financing.
People also ask
Frequently asked questions
What is a good gross rent multiplier?
Lower is better for an investor, and many markets see multiples between 8 and 15, with wide variation by location and property type.
How is GRM different from cap rate?
GRM uses gross rent and ignores expenses, while cap rate uses net operating income, so cap rate is a more complete measure of a property's return.
Should I use GRM alone to choose a rental?
No. Use it only to screen listings quickly, then analyze expenses, vacancy and financing before deciding on any property.