How the calculation works
The gross rent multiplier compares a property's price to the rent it collects. The formula is simple:
GRM = price ÷ gross rent
Gross rent is everything tenants pay in rent before vacancy, taxes, insurance, repairs, utilities or mortgage payments. Turn the formula around and you get the other two modes in the calculator: value = GRM × gross rent, and rent needed = price ÷ GRM.
Some people quote GRM on annual rent and others on monthly rent, which makes the number 12 times larger. A GRM of 11.6 on annual rent equals about 140 on monthly rent. Both describe the same deal. The tool shows both so you never compare one kind with the other.
Worked example
You are looking at a two-family house listed at $600,000. The units rent for $2,200 and $2,100, so gross rent is $4,300 a month, or $51,600 a year.
- GRM: $600,000 ÷ $51,600 = 11.63
- Gross rent yield: 1 ÷ 11.63 = 8.6% of the price each year, before expenses
Three similar buildings sold recently:
| Comp | Sale price | Gross rent / year | GRM |
|---|---|---|---|
| Comp 1 | $610,000 | $52,800 | 11.55 |
| Comp 2 | $575,000 | $49,200 | 11.69 |
| Comp 3 | $655,000 | $54,000 | 12.13 |
The median comp GRM is 11.69. Applied to your $51,600 rent, that suggests a value near $603,000, with a range of about $596,000 to $626,000. The asking price sits inside that range, so on gross rent alone the price is in line with the market. These are illustrative numbers, not real sales.
Why GRM is only a first screen
GRM ignores every expense. Say the same house has $4,000 more in yearly property taxes than Comp 2, or the owner pays heat. The GRM does not change, but the money you keep does. That is why the calculator also asks for an expense percentage and shows an implied cap rate:
Cap rate = net operating income ÷ value, where net operating income is gross rent minus vacancy and operating expenses (not mortgage payments).
At 40% expenses, the example house nets about $30,960 a year, a 5.2% cap rate. At 50% expenses it nets $25,800, a 4.3% cap rate, with the same 11.63 GRM.
Where GRM shows up
Appraisers use a gross rent multiplier in the income approach for small rental properties. HUD's 2006 reference guide notes that the Fannie Mae Form 1025 report for two- to four-unit properties contains the comparable rental data fields needed for GRM analysis. Lenders and appraisers have their own rules for which rent and which comps they use, so your GRM may differ from an appraiser's.
Edge cases
- Rent-regulated units or below-market leases lower gross rent and raise the GRM. Note why rent is low before comparing.
- Include parking, storage or laundry income only if your comps include it too.
- Mixed-use buildings with stores often trade at different multipliers than all-residential ones.
What to do next
Check net income with the cap rate calculator and the rental cash flow calculator. Test the loan with the DSCR calculator. For a quick rule-of-thumb screen, try the 1% rule calculator. Buying in the city? Read buying a two- to four-family house in NYC and find recent sales on Roofy's NYC sales records.