Property Valuation
In the income approach, the Gross Rent Multiplier (GRM) is calculated as:
AAnnual NOI divided by sale price
BSale price divided by monthly gross rent✓ Correct
CMonthly rent multiplied by vacancy rate
DAnnual gross income divided by cap rate
Explanation
GRM = Sale Price ÷ Monthly Gross Rent. It is a quick way to estimate value for income-producing residential properties by comparing to similar properties' GRMs.
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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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