Gross Rent Multiplier. Handy tool when buying income producing property.

Thinking of buying an income producing property? Don’t know what property will yield the most profit, or what property has the most value?

A handy tool in your Real Estate Arsenal is the GRM or Gross Rent Multiplier (only for ROUGH ESTIMATE) Only 2 bits of information are required. The expected amount of rent and the expected purchase price.  You Can use this formula as a monthly tool or a yearly.

 

Here is how it works:

Sales price  divided by expected monthly rent = GRM

Price of the property divided by the monthly rental. If the cost of a property is 100,000 and the monthly rental income is 1,000 the the GRM is 100.

Example of how to use it.

If the property is 125,000 and the expected rent is 1,300 the monthly the GRM will be 96.

If another property in the same area with roughly the same operating expenses is priced at 133,000 and the rent expected is 1,400 the GRM is 95.

The property with the lowest GRM  is typically the one that is the most profitable.

Try using this when you are looking at properties that are in the same general vicinity and you expect your overhead to be roughly the same and want a quick tool to use to estimate the one with the most BANG FOR THE BUCK.

 

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