Gross Rent Multiplier

Start with NOI = (scheduled rent + other income) × (1 − vacancy rate) − operating expenses. Divide each income and expense term by scheduled rent, then divide by GRM = price ÷ scheduled rent:

Cap rate = ((1 + other income ÷ scheduled rent) × (1 − vacancy rate) − expense ratio) ÷ GRM

Use annual amounts and decimal rates in this formula. On the example, scheduled rent is $31,800, other income is $900, vacancy is 5%, and expenses are $11,755.20. NOI is therefore $32,700 × 0.95 − $11,755.20 = $19,309.80; dividing by $265,000 gives 7.29%. The simpler (1 − expense ratio) ÷ GRM gives 7.56% because it omits both the $900 of other income and the $1,635 of vacancy loss.

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?

With no vacancy or other income, cap rate = (1 − operating expense ratio) ÷ GRM, using expenses divided by gross scheduled rent. With both included, replace 1 with (1 + other income ÷ scheduled rent) × (1 − vacancy rate). The loaded example has $900 of other income and $1,635 of vacancy loss, so its actual cap rate is 7.29%, rather than the 7.56% shortcut.

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.