GROSS RENT AND GROSS INCOME MULTIPLIERS
The Income Approach methods discussed previously involved the capitalization of net income. However,
typical investors in certain types of income properties analyze and purchase them on a gross, rather than net,
income basis. Gross Rent Multiplier (GRM) and Gross Income Multiplier (GIM) analyses are also Direct
capitalization techniques that convert a projected single year income to an indication of value.
This discussion and the example below focus on the Gross Rent Multiplier (GRM) which involves the analysis
of the gross rents attributed to a property. However, many properties derive income from sources in addition
to rent (parking fees, etc.). When these additional sources of income are considered significant by typical
potential investors in the property, then analysis of the Gross Income Multiplier (GIM) is appropriate. The
Gross Income Multiplier (GIM) includes the analysis of all gross income generated by the property. GRM’s and
GIM’s may be derived on either a monthly or annual basis, but must be applied consistently to the gross income
of the subject property.
When deriving a GRM or GIM from a comparable sale, use caution if the income generated at the time of sale
was not consistent with the market. If the property sold with rents not at market rates, than an effective GRM
or GIM should be calculated by using market rental instead of actual (non-market) rents
The Gross Rent Multiplier is found by dividing the sales price of an income property by its monthly rent. For
example: a $90,000 sales price divided by a monthly rent of $600 results in a gross rent multiplier of 150. If
homes in the area were selling at prices equivalent to 150 times the monthly rental, then the 150 multiplier
would apply to other comparable homes in the area.
Steps In Using the Gross Rent Multiplier
1. Determine the market rent of the property being appraised by comparison with similar rental properties.
2. The Gross Rent Multipliers of the sales one investigates are calculated by dividing the sales prices by the
monthly rents.
3. The rent multipliers may then be tabulated showing how these properties varied from the subject property:
i.e., better or poorer.
4. The Gross Rent Multipliers are not averaged to arrive at one final multiplier. Rather,
a. each property and its multiplier is compared to the subject property as to market rent, location,
size, condition, utility, and amenities; and
b. after proper analysis, a judgment is made as to the appropriate Gross Rent Multiplier.
5. The appraiser multiplies the selected Gross Rent Multiplier by the market rental of the subject property.
The product is the value estimate.