Investing in real estate is not about getting rich quick. It’s about getting rich for sure. However, you do need to know how quickly you’ll get paid and if an investment is worth the wait. That is why should learn how to calculate GRM — gross rent multiplier.
Understanding this profitability metric can help you make informed decisions about how properties compare to each other in a given market. Also, it can also help you decide on an asset you wish to buy and sell within a certain time period.
If you’re interested in knowing when you’ll pay off your real estate deals before you buy them, find out the formula for how to calculate GRM below.
Basic Gross Rent Multiplier Formula
As I previously mentioned, the gross rent multiplier can give you an idea of how fast you will be able to pay off an asset.
All that aside, here is the formula for calculating the gross rent multiplier of a property:
Purchase Price ÷ Gross Scheduled Income (GSI) = Gross rent multiplier (GRM)
In case I lost you there a moment, the gross scheduled income (GSI) is the amount of cash the property will earn if it is 100% full occupancy.
Based on this formula, you can see how you would want the GRM to be smaller. That is because the lower that number, the faster you pay off the asset and make a property. In theory, at least.
Remember, GRM is not equivalent to the length of time it takes for the investment to pay off because it doesn’t include full net operating income.
When looking at real estate deals, there are a lot of numbers you have to look at. All of them are to help you.
Gross rent multiplier is just one. Know how to calculate it and take it into consideration when going after the deals that will change your life.