Investors
How do I calculate the Gross Rent Multiplier (GRM)?
By Steve Lockhart
The short answer
Gross Rent Multiplier, GRM for short, is purchase price divided by gross annual rent: a $300,000 property with $30,000 a year in gross rent has a GRM of 10. It is a screening tool, which is what it is for.
Full answer
Gross Rent Multiplier, GRM for short, is purchase price divided by gross annual rent: a $300,000 property with $30,000 a year in gross rent has a GRM of 10. It is a screening tool, which is what it is for. With almost no inputs beyond price and rent, you can sort through many properties quickly and flag the ones worth a deeper look. Lower is generally better, because the rent does more of the work relative to the price you pay.
The limit is that GRM looks at gross rent only. It ignores vacancy, property taxes, insurance, HOA dues, management, maintenance, and the age and condition of the building, which are exactly what separate one deal from another. Two properties with the same GRM can have very different cash flow. Because the number uses no expenses, it can flatter a property that will be expensive to own, so treat it as a filter, not a finding.
Use GRM to compare similar properties within the same market as a first pass, then run the full analysis: vacancy, operating expenses, financing, cash flow, cash on cash, and cap rate. A GRM that clears the screen only earns a property the right to be underwritten properly. The shortcut is for sorting the list, and the analysis is for making the decision.
A note from Steve: nothing on this page is investment, legal, or tax advice. Markets move, and every property is different. Run your own numbers on the specific deal, and talk to your CPA and attorney before you commit.
Go a little deeper
Frequently asked
Questions investors often follow up on
Is a lower GRM always better?
Usually, but not automatically. A lower GRM means more rent relative to price, which is the direction you want. A very low GRM can also pair with older construction, higher operating costs, or a weaker submarket, so verify the property's real expenses before you read anything into the number.
Does GRM include vacancy or expenses?
No. GRM uses gross annual rent, before vacancy, taxes, insurance, management, maintenance, or reserves are subtracted. That is why it is a screen rather than a conclusion, and why every property that passes the screen still needs a full cash flow analysis.
What is a good GRM for a Las Vegas rental?
There is no standard good number; the right GRM depends on the property type, the part of the valley, and your goals. The honest approach is to compare the properties you are considering against similar ones nearby, then underwrite the ones that make the shortlist.
The Lockhart Method
The Lockhart Method
Your Home | My Strategy | Proven Results
My strategy: use GRM to narrow the list in minutes, then put each survivor through a full cash flow model with your real financing, vacancy, and reserves. The shortcut screens the field; the analysis makes the call.
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