How is the gross rent multiplier (GRM) calculated?

The gross rent multiplier (GRM) is calculated by dividing the sales price of comparable properties by their gross monthly rent. This calculation provides a simple way to assess the value of an investment property based on its rental income capabilities.

Using the GRM allows investors and appraisers to quickly compare the potential profitability of similar properties in a given market. For instance, if a property sells for $300,000 and its gross monthly rent is $3,000, the GRM would be 100 ($300,000 ÷ $3,000). This multiplier can then be utilized to estimate the value of other rental properties by multiplying it by their expected gross monthly rents, providing a streamlined method to evaluate real estate investments.

The other methods mentioned would not yield the GRM. For example, simply multiplying the number of units by the sale price or adding monthly expenses to the sale price does not directly reflect how the rental income correlates with the property value. Calculating GRM requires focusing specifically on the relationship between the price and income generated, making choice B the correct approach.