Gross Rent Multiplier (GRM), explained
Gross Rent Multiplier is the purchase price divided by annual gross rent. Lower is better. Most investors look for a GRM of 4 to 7, with 8 to 12 typical in higher-cost urban markets. It is a screen, not a decision, because it ignores expenses.
GRM is the back-of-the-envelope metric. You can work it out in your head from a listing, which makes it perfect for triaging a long list of properties before you spend real time on any of them.
What is GRM?
A $350,000 home renting for $2,800 a month ($33,600 a year) has a GRM of about 10.4. You can read it as the number of years of gross rent it would take to pay for the property.
What is a good GRM?
| GRM | Read |
|---|---|
| 4 to 7 | Favorable. What many investors target. |
| 6 to 8 | Average for many secondary markets. |
| 8 to 12 | Higher-cost or urban markets. Expensive relative to rent. |
Lower means you pay less per dollar of rent. The right range varies a lot by market, so compare like with like.
GRM vs cap rate
They answer similar questions from opposite directions. GRM uses gross rent and ignores expenses, so it is faster but cruder. Cap rate uses net income, so it is slower but truer. A lower GRM usually points to a higher cap rate. Use GRM to shortlist, then cap rate to actually compare.
Its blind spot
Because GRM uses gross rent, it says nothing about expenses, vacancy or financing. Two properties with identical GRMs can have very different cash flow: one with high taxes and an old roof, one with neither. Never make an offer on GRM alone.
Frequently asked questions
What is a good gross rent multiplier?
Many investors target a GRM of 4 to 7. In higher-cost urban markets, 8 to 12 is common. Lower is better, but the right range depends heavily on the market.
Is a high or low GRM better?
Lower is better. A low GRM means the price is modest relative to the rent the property produces. A high GRM can signal an overpriced property.
What is the difference between GRM and cap rate?
GRM uses gross rent and ignores expenses; cap rate uses net operating income and is more accurate. GRM is a multiple where lower is better; cap rate is a percentage where higher is better.
Can I value a property using GRM alone?
No. GRM is a first-look screen only. It ignores operating expenses, vacancy and condition, so always confirm with cap rate and a full cash-flow analysis before making an offer.