Gross Rent Multiple (“GRM”)

by Brad Schaeppi
March 22, 2014
Category:   InvestProp Glossary

InvestProp Glossary:

Gross Rent Multiple (or GRM for short)

How many times the scheduled annual rent is the purchase price (or asking price).  

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Used in a sentence:  

The asking price of that 4 plex is a 9.1 gross rent multiple.

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Application:

Gross Rent Multiple or “GRM” is the best short hand metric to compare small multiple properties apples to apples (better than cap rate, price per unit, or price per square foot).  Small multifamily properties vary greatly in square footage, bedrooms, units, condition, and location.  GRM is the opposite of a cap rate–the lower the GRM, the better the value to the buyer.  When comparing properties to purchase, investors should quickly calculate each gross rent multiple to see in 5 seconds, how realistic is the asking price.  Small multifamily properties typically trade in distinct GRM range ranges in each individual submarket (typically within 1 point–like 5.0 to 6.0 or 7.5 to 8.5).  For example, in the fourth quarter of 2013, arm length average condition, small multifamily properties in the westside of St. Paul traded between 6.0 and 7.0.  NOTE:  Not all properties can be compared apples to apples:  Some 4 plexes have 1 central boiler while others have 4 separate boilers or furnaces.  Don’t forget to dig into the details after the 5 second math lets you know how realistic an asking price is for a given property.

Advice:

Ask your agent about the gross rent multiples in the submarket(s) you currently own in or are interested in.  If he/she has no idea…time to pull the ripcord and get out of that arrangement.  You could well overpay or make an emotional decision.   This applies especially if you are selling multifamily.  If your asking price equates to a 10.0 gross rent multiple and no sale in that area has exceeded 8.0, it is highly, highly unlikely that property will ever sell at that price and time.

What is the GRM for your submarket?  Contact InvestProp to find out!!

Thanks–and look for more terms in the InvestProp Glossary!

–Brad Schaeppi, founder and CEO


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