GRM in real estate

Sometimes it feels like real estate investors use too many ways to measure returns. Are they all really necessary? What is gross rent multiplier anyway, and why should investors bother with it?

While a blunt instrument, gross rent multiplier (GRM) offers an easy, back-of-the-napkin way to compare markets for rental investing.

Also referred to as gross income method (GIM), gross rent multiplier gives you a simple glimpse into the profitability of any investment property or city. That simplicity comes at a cost however — GRM ignores factors like operating expenses and investment property financing. Make sure you understand not just its uses, but also its limitations before relying too heavily on it.


What Is Gross Rent Multiplier?

Gross rent multiplier is the ratio between the value or price of a property and the gross annual rental income it creates through rent. Put another way, GRM tells you how many years it would take for the gross rental income to pay for the purchase price.

It makes a quick shorthand to calculate rental profitability. But it ignores all rental property expenses, which vary wildly across real estate markets.


Gross Rent Multiplier Formula

Calculating GRM is about as simple as formulas get in real estate. The gross rent multiplier formula reads as follows:

GRM = Property Price / Gross Annual Rental Income 

Hardly rocket science, eh?

Note that “gross rent” means just the sum total of all collected or potential rent. It does not include operating expenses such as vacancy rate, property taxes, landlord insurance, property management fees, repairs, maintenance, and so on.


Calculate Gross Rent Multiplier: Example

Say Sam has his eyes on a real estate investment that costs $300,000. The property rents for $3,000/month, for a gross annual rent of $36,000.

$300,000 Property Value / $36,000 Annual Rental Income = 8.33 GRM

What does that mean? The GRM gives an estimate for how long it will take a property to pay for itself. In this example, it will take 8.3 years for Sam to pay off the property. Bear in mind that the GRM formula does not include other rental expenses such as property taxes, vacancy rate, and insurance.


Gross Rent Multiplier Calculator

Yes, GRM is one of the easiest calculations in real estate investing. But that doesn’t mean a free gross rent multiplier calculator wouldn’t make your life easier.

Bookmark this page to use our free GRM calculator any time.

How to Use GRM in Real Estate Investing

In addition to providing a quick price/rent ratio for a prospective property, GRM comes with a few other uses.

Many real estate investors use GRM to compare prospective cities and neighborhoods for investing. Some cities offer relatively high rents and low property prices — an attractive proposition. Others feature outrageously high home prices compared to the rents — cities to avoid.

Gross rent multiplier can also help you identify the fair market value of a property, if you know the GRM for similar properties in the area. You can invert the formula like this:

Typical Property Value = Rental Income X GRM

Revisiting the example above, Sam knows the gross annual rental income, and the typical GRM for the neighborhood: the number of years it typically takes to pay off area properties. With that information, he can calculate and identify what the current market value for the property would be.

$36,000 Rental Income X 8.33 GRM = $300,000 Value (rounded)

Likewise, you can use the GRM formula to determine fair rent. If you want to determine what the monthly rent should be on a given property, you must know the fair market value:

Rental Income = Price of Property / GRM

In this scenario, Sam knows the GRM and the sale price of the property. This calculation determines a fair renting price.

 $300,000 Property Value / 8.33 GRM = $36,000 Rental Income

By taking the price of the property and dividing by the years that the property should pay for itself, Sam is given an estimate for what he should make annually from his renters.

But given the bluntness of the GRM, you can’t calculate rental cash flow or property values with any real precision. Instead, put that very bluntness to work for you by using it on a larger scale, to identify cities with attractive price/rent ratios.

Real estate investments? Awesome. Being a landlord? Less fun.

Learn how to earn 15-30% on passive real estate investments in one free class.

Katie earning passive income from real estate syndications

Cities with the Best Price/Rent Ratios (GRM)

Expensive coastal cities rarely make good markets to invest in real estate. The properties usually don’t cash flow well, with high price/rent ratios. For example, people love to complain about the high rents in San Francisco, but the simple fact is that home prices are disproportionately higher. San Francisco features a GRM of over 30 years!

To help you find better markets for real estate investing, we calculated the GRM for the top 300 most populous cities in the US:

In today’s world, nothing stops you from investing in real estate long-distance. Increasingly, real estate investors buy turnkey properties sight unseen. Check out Norada Real Estate as the nation’s largest and oldest turnkey property seller, or Roofstock for a turnkey property marketplace. For more, check out this real estate heat map to find the hottest (and coldest) markets in the US.  

Limitations of GRM

Although the gross rent multiplier is a quick and easy way to determine the property value, it comes with some drawbacks. Most importantly, GRM does not account for variations in your expenses as a landlord, such as:
    1. Property insurance
    2. Property Taxes
    3. Maintenance and rRepairs on theto a property
    4. Property mManagement fees
    5. Vacancy rate
    6. Maintenance on property
    7. Legal and ownership expenses
These expenses vary sharply from one neighborhood to another, and from one city to another. For example, property taxes in one city could be a small fraction of those in the next county over, or many times higher. Or in two adjacent neighborhoods, crime rates could be double in one compared to the other, driving demand down and repair and turnover costs up. An easy example: Sam is trying to decide whether to purchase a property in Area 1 or Area 2. Area 1 has a GRM of 9, and Area 2 has a GRM of 12. At first glance Sam thinks that Area 1 looks more attractive. However, Sam soon realizes that Area 2 suffers from double the crime rates of Area 1. After running the numbers through a property cash flow calculator, he discovers that the typical property in Area 2 produces a higher average yield than properties in Area 1, despite the higher GRM.  

What Is a Good Gross Rent Multiplier?

Generally speaking, the lower the GRM at purchasing price- the better for property level investments. However, as mentioned prior, gross rent multiplier does not solely offer enough information to gage a property’s returns. While lower GRMs are more attractive to rental investors, it is difficult to place a specific number on a “good” GRM. In some of the best cities for real estate investing, you might GRMs under 8. In the worst, you could see a GRM over 30! Even within cities, expect a wide range of GRMs. In high-crime, high-vacancy, low-rent areas, you might see GRMs as low as 4 or 5, while in premier neighborhoods GRMs could triple that. Always take GRM with a grain of salt, and use it as a first-glance way to screen cities and properties, not your only form of due diligence in real estate.

investment property loansWhat do lenders charge for a rental property mortgage? What credit scores and down payments do they require?

How about fix-and-flip loans?

We compare the best purchase-rehab lenders and long-term landlord loans on LTV, interest rates, closing costs, income requirements and more.

Difference Between GRM & Cap Rates

Capitalization rates (cap rates for short) are one way to measure the return on investment on an income property. You calculate a property’s cap rate by dividing the net operating income (NOI) over the property price or value.

Net operating income is the gross annual income, minus all operating costs such as vacancy rate, repairs, maintenance costs, property manager fees, insurance, and property taxes. Because cap rates include expenses, they offer a more accurate measure of potential investment properties’ returns.

Neither GRM nor cap rates take investment property financing into account. That removes debt service from the equation — great for isolating just the income potential of different markets or properties.

Both cap rates and GRM can serve as screening tools to scout potential rental markets and investment opportunities. While GRM applies more to residential properties, cap rates apply to all property types.


Difference Between GRM & Cash-on-Cash Return

While GRM is a blunt financial metric, cash-on-cash return is more precise for specific properties.

Cash-on-cash return is the annual yield you earn on your own cash invested in an income-producing property. Only your invested cash: your net annual income, divided by the cash you personally invested in the property.

Unlike cap rates and gross rent multiplier, cash-on-cash return takes your mortgage payments into account. If you invested a total of $50,000 in closing costs and your down payment on a rental property, and the property generates $5,000 per year in net income, you earn a 10% cash-on-cash return.

Commercial property investors also use cash-on-cash return to measure income yield on real estate syndications.

It offers one more rate of return metric, to help you measure potential income. For more details, check out our free cash-on-cash return calculator, and while you’re at it, our internal rate of return calculator.


Final Thoughts

Gross rent multiplier is a great way to quickly glance at a property’s value when scanning potential property investments.

However, it doesn’t account for your expenses as a landlord or property investor, which makes it a blunt instrument. When seriously considering purchasing a property, complete a full analysis of cash flow and other returns to make the best possible financial decision.


How do you use GRM in your real estate investing decisions?



More Real Estate Investing Reads:

About the Author

G. Brian Davis is a real estate investor and cofounder of SparkRental who spends 10 months of the year in South America. His mission: to help 5,000 people reach financial independence with passive income from real estate. If you want to be one of them, join Brian and Deni for a free class on How to Earn 15-30% on Fractional Real Estate Investments.

Reach out through the void!

FREE Webinar: Open $250K in Credit Lines for Investing

On Wed. 3/23/22 at 2pm & 8pm EST, Deni & Brian are hosting Fund&Grow for a free webinar to show you how to open up to $250,000 in unsecured business credit lines for real estate investing.

Free Background Check

Run a FREE housing & identity check!

Credit, criminal, eviction reports also available.

Want to create passive income?


We’ll email a series of videos in our free course,

to help you start earning income from rentals.

[mc4wp_form id=”501″]

Privacy Policy: Your info will never be shared or sold to a 3rd party. Even if Dr. Evil offers us 1 million dollars 🙂

Rental ROI Ebook

Want to earn more from your rentals?


Download our free Ultimate Guide to Higher ROI and be dazzled by the charming wit, disarming frogs and invaluable tips for higher profits and less work.


[mc4wp_form id=”501″]

Free Mini-Course: Passive Income from 2-4 Unit Multifamilies

Free Mini-Course: Passive Income from 2-4 Unit Multifamilies


Ready to build passive income from small multifamily properties?

Over the next week, we'll email you a free series of videos, so enter your best email and let's get started!

You're in! Check your email to confirm, and you can email us directly at support@ with any questions :-)

Free Webinar: Earn 15-50% on Passive Real Estate Syndications

LIVE masterclass on Tues. 10/25 @ 8pm EST

Your seat is reserved! Check your email to confirm.

Inside a group real estate investment

Here's a quick video breakdown of a past group investment — and how it's performed since our Co-Investing Club invested in it in early 2023.

You got it! Check your email for the link, and some other fun freebies.

Ready to Build Passive Income?

Ready to Build Passive Income?


We'll email you the course videos over the next week, so enter your best email!

You're in! Check your email to confirm.

Ditch Your Day Job: Free 8-Video Course


Our brand new course on how to reach financial independence and retire early (FIRE) with rental properties is open for one week from Oct. 23-30!

You're in! Check your email for the link, or click here for the 1st video!

How do group real estate investments work?

If you want the cash flow, appreciation, and tax benefits of real estate without hassling with loans or landlording, learn how to invest passively. 

Awesome! Check your email :-)

Down Payment For A Rental Property

Low Risk & High Returns? How to Find "Asymmetric Returns"in Passive Real Estate Investments

In a live online meetup on Wed. 6/26, we'll break down six ways to find "asymmetric returns" in private equity real estate syndications.

Awesome! Check your email :-)

Hack the Rich: 7 Secrets We've Learned from Private Equity Real Estate

In a free workshop, we share 7 secrets we've learned from the rich over the last few years of investing in private equity real estate syndications.

Awesome! Check your email :-)