As with the Cap Rate...the Gross Rent Multiplier is another measurement of the value of an income producing property...and again, this can be a major factor for a buyer, a lender...and certainly the appraiser.
As a lender, we try to make it as simple as possible, and as understanding as possible. This is a good "textbook' definition, which actually came out of a course that I was taking...and put the GRM in understandable terms:
The Gross Rent Multiplier, or GRM, is a ratio that is used to estimate the value of income producing properties. The GRM provides a rough estimate of value. Only two pieces of financial information are required to calculate the Gross Rent Multiplier for a property, the sales price and the total gross rents possible. If this information is available for multiple recent sales of similar types of income properties in a particular area, it can then be used to estimate the market value of other similar properties in that area. Some investors use a monthly Gross Rent Multiplier and some use a Yearly GRM, which is somewhat unusual these day. The monthly Gross Rent Multiplier is equal to the Sales Price of a property divided by the potential monthly rental income and the Yearly GRM is the Sales Price divided by the yearly potential rental income. Both of these formulas, though, can give a buyer good numbers for his orher consideration.
When you are looking to get a loan for a commercial property, look at what we offer.....many, many products for almost every kind of commercial-investment-income producing properties. Creative Commercial Funding is our goal.
www.largentfinancial.com
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