How this number is made
Gross rent multiplier is a blunt screen. It ignores vacancy, expenses, and debt. Two buildings with the same multiplier can have very different cash flow.
- Use gross rent, before vacancy.
- Price is the price you would pay.
Formula
GRM = price ÷ (monthly rent × 12).
Worked example
With the figures already in the form, gross rent multiplier is 10.42.
Questions
What is a good multiplier?
It depends on the market and on expenses. A low multiplier that comes with a collapsing roof is not a bargain. Use it to throw out outliers, then do NOI.
Is this the cap rate?
No. Cap rate uses income after expenses. A multiplier uses rent before expenses.