Enter the total purchase price of a property and the annual gross rent the property generates to determine the gross rent multiplier.
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Gross Rent Multiplier Formula
The following formula is used to calculate a gross rent multiplier.
GRM = P / AR
- Where GRM is the gross rent multiplier
- P is the purchase price of the property ($)
- AR is the annual rental income earned from the property ($)
Gross Rent Multiplier Definition
A gross rent multiplier is a ratio between the purchase price of a property and the annual rental income generated from that property.
Gross Rent Multiplier Example
How to calculate gross rent multiplier?
- First, determine the purchase price of the home.
Most often this purchase price includes closing costs and taxes required when buying a home. This more accurately displays the GRM.
- Next, determine the annual income from rent.
Multiply the monthly rent income by 12 to get the annual income.
- Finally, calculate the GRM.
Calculate the CRM by dividing the purchase price by the annual rent income.
A gross rent multiplier is a ratio of the total purchase price of a property and the annual income generated by the property.
In general, any GRM greater than 15 is not considered ideal. This is because including taxes and maintenance the ROI of the property would likely be considerable less than just investing in index funds at that multiplier.