Gross Rent Multiplier (GRM): Formula and What It's Good For

Gross rent multiplier is the purchase price divided by a year's gross rent. It tells you how many years of rent it would take to equal the price, ignoring all expenses. Lower is better.

The formula

GRM = Purchase price / Gross annual rent

An example

A US$150,000 house renting for US$1,450 a month collects US$17,400 a year. GRM is US$150,000 / US$17,400 = 8.6.

A US$320,000 house renting for US$2,100 collects US$25,200. GRM is 12.7. The first property is cheaper relative to the rent it brings in.

What counts as a good number

In lower-priced cash-flow markets, GRM of 7 to 11 is common. In expensive coastal metros it is frequently 15 to 25, because buyers there are paying for expected appreciation rather than current income. There is no universal threshold. GRM is only meaningful against other properties in the same market.

What it can't tell you

GRM uses gross rent, so it is blind to everything that varies between properties:

• Property tax, which can differ by a factor of three between states
• Whether there is an HOA fee
• Insurance, which is far higher in coastal and flood-exposed areas
• Condition, and therefore maintenance and CapEx

Two houses with an identical GRM of 9 can have very different cap rates once those land. That is why GRM belongs at the screening stage: it is fast, needs only two numbers from the listing, and is useful for cutting a list of 40 houses to 8. Then switch to cap rate and cash flow on the survivors.

GRM is the same idea as the 1% rule expressed differently. A GRM of 8.33 is exactly 1% monthly rent-to-price.

Related reading

The calculator goes straight to cap rate, cash flow and cash-on-cash return from a price and a rent, which is the next step after a GRM screen.