Gross Rent Multiplier

The two metrics are linked by the operating expense ratio:

Cap rate = (1 − operating expense ratio) ÷ GRM

On the worked example, operating expenses are 37.0% of gross scheduled rent, so (1 − 0.370) ÷ 8.33 = 7.56%. The actual cap rate is 7.29%; the difference is the 5% vacancy allowance, which reduces income but sits outside the expense ratio.

What is the gross rent multiplier formula?

GRM = purchase price ÷ gross annual scheduled rent. On the example here, $265,000 divided by $31,800 of annual rent is a GRM of 8.33. Some investors use monthly rent instead, giving a figure twelve times larger — 100 rather than 8.33 — so always check which convention a quoted GRM uses.

What is a good gross rent multiplier?

It is entirely market-dependent. Low-cost Midwest markets commonly trade between 6 and 10; coastal metros with strong appreciation regularly exceed 15 or 20. A GRM is only meaningful against other properties in the same submarket with similar expense structures.

What is the difference between GRM and cap rate?

GRM uses gross rent and ignores every expense; cap rate uses net operating income and accounts for all of them. The example property has a GRM of 8.33 and a cap rate of 7.29%. Two buildings can share a GRM of 8.33 and have cap rates two points apart if one has double the property tax.

How do you convert GRM to cap rate?

Cap rate = (1 − operating expense ratio) ÷ GRM, where the expense ratio is measured against gross scheduled rent. Here: (1 − 0.370) ÷ 8.33 = 7.56% on scheduled rent alone. The small gap from the actual 7.29% is the vacancy allowance, which the GRM does not know about.

When is GRM actually useful?

As a first-pass filter across a lot of listings at once. It takes two numbers off the listing page and no assumptions, so you can rank fifty properties in a few minutes and then underwrite the top five properly. It is a triage tool, not a decision tool.

The expense-aware version of this metric is the cap rate calculator. For the same screen expressed as a percentage, see the rental yield calculator, and for the monthly-rent version of the same idea the 1% rule.