What is a gross rent multiplier?
gross rent multiplier is measurement used by real estate experts to assess the profitability of rental real estate producing income. It is calculated by taking over the selling price of the property and its distribution by potential income from the rental of real estate. This value can be calculated on a monthly or annual level and is used to assess properties in one area with properties in the same area. When comparing a multiplier of gross rent or GRM with two real estate, a property with a lower GRM has greater potential for profit. Investors in real estate must know whether they receive good value of capital they invest in real estate. Therefore, they need some kind of determining factor to decide on the relative value of properties in the same area. Although it has certain restrictions, the gross rent multiplier is a good measuring stick because it gives investors a quick idea of how profitable can be a specific rental property.
as an example of how to calculate Gross Rent MultiplieR, imagine that a real estate investor focuses on an apartment building with a sales price of $ 400,000 USD (USD). For this property is income that would be obtained in a single month if all rooms were occupied, also known as a gross rental income, $ 8,000. For GRM calculation, $ 8,000 is divided into $ 400,000. The resulting value of 50 is a monthly grm for this property.
Received in the nominal value, the gross rent multiplier is a quick way to assess real estate in the same area against each other. Assets that hold GRM lower than other property can be considered as profitable of the two. However, there are restrictions on this rapid judgment. For example, GRM does not take into account the different operating costs of different properties, nor does the equation take into account the sums of unoccupied jobs. Both of these problems could significantly affect profitability.
used in the opposite,The gross rent multiplier can help the investor assess the real value of the lease property. Imagine, for example, that the potential gross income of rental of real estate per month is $ 5,000 and the average GRM for real estate in the area is 60. The investor can overturn the GRM equation and multiply $ 6,000, $ 300,000. Thus, $ 300,000 is an estimate of the value of the property and the investor can assess this sum against the desired price of the seller and find out whether the property is worth buying.