What Is Gross Rent Multiplier?

The Gross Rent Multiplier is the fastest way to size up a rental property investment. You can calculate it in 10 seconds with two numbers: the property price and the annual rent. It will not tell you everything, but it will tell you if a deal is worth a closer look.

How to Calculate GRM

The formula is:

GRM = Property Price ÷ Annual Gross Rental Income

A property listed at $300,000 that generates $42,000 per year in gross rent:

$300,000 ÷ $42,000 = 7.14 GRM

That means you are paying 7.14 times the annual gross rent for the property. In other words, if every dollar of rent went straight to paying off the purchase price (which it never does), it would take about 7 years.

What a Good GRM Looks Like

Lower is better. Here is a rough scale:

• Under 4: Excellent. Strong cash flow market. Often found in smaller cities, rural areas, or C-class neighborhoods.
• 4-7: Good. Most solid rental investments fall in this range.
• 7-10: Moderate. Can still work but margins are tighter. Common in competitive markets.
• Over 10: Expensive. You are paying a premium. Cash flow will be thin. Common in coastal cities and high-appreciation markets like San Francisco or New York.

A 4-unit building in Indianapolis might have a GRM of 5. A comparable building in San Diego might be 12. Neither number is "wrong." They reflect different market dynamics. Indianapolis is a cash flow market. San Diego is an appreciation market.

GRM vs. Cap Rate

GRM and cap rate are both tools for evaluating rental property, but they measure different things.

GRM uses gross rent. It ignores expenses. Cap rate uses net operating income, which is rent minus all operating expenses. Cap rate gives you a more accurate picture of profitability because it accounts for the money going out, not just the money coming in.

Think of GRM as the first filter. You use it to quickly screen properties and eliminate the overpriced ones. Then you calculate cap rate on the deals that pass the GRM test to see if the numbers actually work after expenses.

Real Example: Comparing Two Properties

Property A: Listed at $280,000. 4 units renting at $900/month each = $43,200/year gross rent.
GRM: $280,000 ÷ $43,200 = 6.48

Property B: Listed at $350,000. 4 units renting at $1,050/month each = $50,400/year gross rent.
GRM: $350,000 ÷ $50,400 = 6.94

Property A has a slightly better GRM (6.48 vs 6.94), meaning you are paying less per dollar of gross rent. But this is just the first pass. Property B might have lower expenses, newer systems, and less deferred maintenance. You need to dig deeper with a full NOI analysis to know which is actually the better deal.

Limitations of GRM

It ignores expenses. Two properties with identical GRMs can have wildly different profitability if one has much higher taxes, insurance, or maintenance costs. A property with a 6.0 GRM and $2,000/month in expenses is very different from one with a 6.0 GRM and $800/month in expenses.

It ignores vacancies. GRM assumes 100% occupancy, which never happens. A property with chronic vacancy problems will have a misleading GRM because the actual income is lower than the gross rent suggests.

It ignores financing. GRM does not factor in your mortgage, interest rate, or down payment. Two investors can buy the same property with different loans and have completely different returns. Use cash-on-cash return to account for financing.

It is market-specific. A GRM of 8 is terrible in a cash flow market and normal in an appreciation market. Always compare GRM to other properties in the same market, not across markets.

How to Use GRM in Your Investment Process

Step 1: Calculate GRM for every property you look at. This takes 10 seconds. Price divided by annual rent. If the GRM is way above market average, skip it.

Step 2: Compare to local averages. Talk to local agents or check recent sales data. If the average GRM in your target market is 6, a property at 9 is overpriced and a property at 4.5 is worth a hard look.

Step 3: Use GRM to screen, then go deeper. Once a property passes the GRM filter, calculate the cap rate, cash-on-cash return, and DSCR to get the full picture.

Common Mistakes With GRM

Using GRM as the only metric. GRM is a screening tool, not a decision-making tool. It tells you if a deal deserves further analysis. It does not tell you if it is a good investment.

Comparing GRM across markets. A 7 in Memphis and a 7 in Portland mean completely different things. Compare properties within the same market.

Using asking rent instead of actual rent. The listing might say units rent for $1,200 but current tenants are paying $1,050. Use actual collected rent, not projected or market rent, for accurate GRM.

Frequently Asked Questions

What is a good Gross Rent Multiplier?

Between 4-7 is generally good for rental properties. Under 4 is excellent. Over 10 means the property is expensive relative to its income. Always compare to local market averages.

What is the difference between GRM and cap rate?

GRM uses gross rent and ignores expenses. Cap rate uses net operating income (after expenses). GRM is a quick screening tool. Cap rate is for deeper analysis of actual profitability.

Does GRM account for expenses?

No. GRM only considers gross rental income. This is its main limitation. Use it for quick comparisons, then dig deeper with NOI and cap rate calculations.