Property Valuation
The gross rent multiplier (GRM) is calculated by dividing the:
AProperty value by annual NOI
BProperty sale price by annual (or monthly) gross rent✓ Correct
CAnnual operating expenses by gross income
DCap rate by the annual NOI
Explanation
GRM = Sale Price / Gross Rent (monthly or annual). It is a quick, rough measure of value based on income without accounting for expenses.
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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.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
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