Gross Rent Multiplier is the ratio of the price of a real estate investment to its annual rental income before accounting for expenses such as property taxes, insurance, utilities, etc.
It’s a method investors may use to determine market value. The higher the number the more overpriced the property is compared to the comparables in the marketplace. Conversely, the lower the number, the better value.
Example: $200,000 Sale Price / $20,000 gross annual rental income = 10
The GRM, otherwise known as GIM (Gross Income Multiplier) varies drastically by the location. The pros of using the GRM metric is it’s typically a “pure” number in that you can rely on it. Whereas, Cap Rate can be manipulated depending on the legitimacy of the Expenses.
Some people use the GRM to calculate the number of years the property would take to pay for itself in gross received rent. I feel this is meaningless and simple minded because it doesn’t take into account the expenses, consequently making the statement about how long it takes to pay off the sale grossly incorrect.