How is the Gross Rent Multiplier (GRM) calculated?

The Gross Rent Multiplier (GRM) is a valuation metric used in real estate to assess the value of an income-generating property. It is calculated by taking the sales price of the property and dividing it by the property's monthly rental income. This formula provides a quick way to evaluate how long it might take for an investment in real estate to pay off based on rental income.

Choosing the method involving sales price divided by monthly income reflects the standard practice used in the industry. It allows an investor to understand the ratio of the property’s price to its earning potential through rent, making it easier to compare different properties based solely on the income they generate.

This approach effectively offers insight into the investment's liquidity by estimating how efficiently the property's rental income covers the purchase price. Other methods of calculating GRM may not provide the clarity needed for quick analysis or might focus on different aspects of the investment's financial performance.