Gross Rent Multiplier (GRM)

Gross rent multiplier is price divided by annual gross scheduled rent. The default property, $300,000 at $30,000 of rent, has a GRM of 10. Unlike cap rate, it stops before vacancy and operating expenses, so it ranks properties by rent alone and says nothing about NOI.

GRM is fast and that is its value. Two properties at the same GRM can have very different NOI, though. Give the default house $7,500 of taxes instead of $3,600 and the GRM is still 10, but NOI falls to $14,370 and the cap rate from 6.09% to 4.79%. A high-tax state, an older building or owner-paid heat all hide behind the same multiplier.

The Wikipedia article includes a table comparing GRM, gross income multiplier and NOI-based measures, and makes the point that GRM works only for screening properties with similar expense profiles. Use it to sort a list of twenty listings. Then rebuild NOI for the three that survive, because the rent-to-price ratio behind GRM is not income until the expenses come out.

Further reading: Gross Rent Multiplier (GRM) on Wikipedia.