How is a gross rent multiplier calculated?

The gross rent multiplier (GRM) is indeed calculated by dividing the sale price of the property by its monthly income. This metric is especially useful for investors and appraisers as it provides a quick way to assess the potential return on investment for rental properties.

By using monthly income in the calculation, the GRM provides a standardized factor that enables comparisons across properties with varying rental income levels. For example, if a property sells for $300,000 and generates a monthly rental income of $3,000, the GRM would be calculated as $300,000 divided by $3,000, resulting in a GRM of 100. This figure helps investors understand how many months of rental income it would take to recoup the investment in the property, allowing for informed decision-making regarding property purchases.

Selecting the correct income basis—monthly in this case—ensures that the GRM remains relevant and useful in evaluating rental properties, making it a critical tool in appraisals and investment analyses.