# How to Calculate GRM (Gross Rent Multiplier)

## Formula & Definition

The gross rent multiplier (GRM) is a simple method by which you can estimate the market value of an income property. The GRM is a market-driven measurement. You presume that, if buyers have recently been paging X times gross income for properties in a certain location, the the market value of a property you are considering for purchase should work out to that same "X times" its gross income.

The advantage of the GRM is that it is so easy to calculate. You don't need a computer; you probably don't even need the back of an envelope, but ether can do the math in your head. The disadvantage is that nothing so basic is likely to be extraordinarily accurate or reliable. GRM ignores the time value of money and it makes no differentiation between properties where tenants may pay all, some, or none of the operating expenses.

This measurement can serve as a useful precursors to a serious property analysis, however. For example, if you see that a property is offered for sale at a GRM significantly higher than chat is typical in the market, you can expect that a detailed analysis is probably not going to make this investment look more appealing, except at a substantially lower price. You can then decide if you want to spend the time doing research and making projections in a case where the GRM warns you that the property is probably greatly overpriced.

Because the GRM is market-driven, there is no universally correct number - but there are reasonable limits. Realistically, you would probably be surprised (and suspicious) to see a GREM below 4 and on the other hand to see one higher than 10.

## How to Calculate Gross Rent Multiplier

1. Find a market value of an investment property.
2. Estimate its gross scheduled income for the whole year.
3. Divide the two numbers as per this formula: