Property Valuation
Gross rent multiplier (GRM) is calculated by dividing the:
ASale price by the annual net operating income
BSale price by the gross annual rent✓ Correct
CAnnual NOI by the cap rate
DMonthly rent by the sale price
Explanation
GRM = Sale Price ÷ Gross Annual Rent (or monthly rent if using a monthly GRM). It is a quick, rough estimate of value used for smaller income properties.
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Key Terms to Know
Gross Rent Multiplier (GRM)
A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
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