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Tucson Realtor®: Crystal Harris ABR, GRI
The Gross Rent (Income before any expenses are deducted) Multiplier (GRM) is sometimes used to give an estimate of value for an income producing property.
The GRM is useful because the investor only needs to know the sale price & the annual income to calculate the GRM. Calculating a Cap Rate requires knowing the Net Operating Income (NOI), instead of gross rental income. Cap Rates are more reliable because there are more factors to consider and requires the investor to do more research. To find the sale price, a mortgage officer or appraiser will find comparables of closed sales in the immediate area and then calculate the average of those comparables. Example using the GRM formula: Gross Rent = $25,000 Sales Price of Property = $250,000 GRM = $250,000 / $25,000 GRM = 10 After calculating the GRM on the property, other properties in the immediate area should fall pretty close to your GRM figure, as long as similiar properties in the immediate area have proportionate operating expenses. GRMs do not factor in operating expenses. Cap Rates do factor in expenses. Net Operating Income = Gross Annual Income - Operating Expenses. A GRM figure of 10 suggests that the market value should be 10x its gross annual income. Example: Estimated Market Value (EMV) = GRM x Potential Gross Income EMV = 10 x $25,000 EMV = $250,000 Income properties with lower GRMs than similiar properties in the same area or location, are more profitable from an income perspective than higher GRMs. Investors will expect higher rents to compensate for lower property values. The investor will usually find these properties in less desirable locations. Income properties with higher GRMs are usually found in areas that have high property values and/or accept lower rents. The investor is relying on the value of the property to rise. Please contact me, so I can help you find your next Tucson investment property. I look forward to helping you with all of your real estate needs!
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