What Is a Gross Rent Multiplier?
The rental multiplier is a simple formula that compares the total selling price to the total annual rental income. The formula is: rental multiplier = investment amount ÷ potential rental income per year.
Rent multiplier
Right!
- Chinese name
- Rent multiplier
- Concept
- A simple calculation formula
- Formula
- Rental investment amount ÷ potential rental income per year
- Defect
- Impact on operating expenses, taxes, etc.
- Cut-off numbers
- 12
- The rental multiplier is a simple formula that compares the total selling price to the total annual rental income. The formula is: rental multiplier = investment amount ÷ potential rental income per year.
- If the result is less than 12, it is within the reasonable purchase range. For example, the price of a house is 220,000 yuan and the monthly rent is 1,500 yuan. Then its rent multiplier is about 12 times. Generally, this number is seen as the dividing line for most leased properties.
- However, if the rent multiplier of a property is more than 12 times, it is likely to bring negative cash flow. If the price of this house rises to 600,000 yuan after a few years, but the monthly rent is still less than 2,000 yuan, the rent multiplier will rise to 25 times, which has greatly exceeded a reasonable range.
- Investors can compare the property's rent multiplier with their expected expectations, or compare the different properties, whichever is smaller. However, this method does not take into account the impact of vacant housing, rent arrears, operating expenses, taxes and other aspects.