A gross rent multiplier (GRM) is a simple way to create a number to give you an estimate on the viability of an investment property.
The formula for GRM is simple. You just need the purchase price or market value and then divide that by the gross scheduled income. For duplexes, the second formula is another way to look at the calculation:
Gross Rent Multiplier (GRM) = Property Value / Gross Scheduled Income
Duplex GRM = Property Value / (GSI of Unit 1 + GSI of Unit 2)
This gives you a ratio between value and income. A smaller number indicates a better investment opportunity since it means the property would pay for itself in a shorter amount of years.
If you want to determine the Monthly Gross Rent Multiplier, simply multiply the yearly GRM by 12.
If a duplex has a value of 240k, and one side is renting at $1000 a month and the other side is renting for $1000 a month, you would calculate the following yearly and monthly duplex GRMs.
- $240k (PropertyValue) / ($1,000*12) + ($1,000*12)
- $240k (PropertyValue) / ($24k)
- $240k (PropertyValue) / ($24k) = 10 GRM
10 Years of collecting 24k = $240k
Monthly GRM = 12*10 or 120
120 Months of collecting $2000 = $240,000
The GRM is a quick and easy metric but very limited. A serious investor would use the GRM as a rule of thumb but would calculate the cap rate to really determine a property’s attractiveness. There are just too many variables left out with GRM to get an accurate measure of investment worthiness.