The Gross Rent Multiplier (GRM) is a capitalization method used for calculating the approximate value of an income producing commercial property based on the property's gross rental income.
To calculate the value of a commercial property using the Gross Rent Multiplier approach for valuation, simply multiply the Gross Rent Multiplier (GRM) by the gross rents of the property.
How to calculate the Gross Rent Multiplier (GRM):
In this example, the GRM for a property with a listing price of $640,000 and $80,000 in gross rental income is 8. Next, simply average the respective gross rent multipliers together and you will have a good indication of the local market GRM for your property type.
To calculate the Gross Rent Multiplier, divide the selling price or value of a property by the subject's property's gross rents.
The GRM calculation of value
Property Value = Annual Gross Rents X Gross Rent Multiplier (GRM)
$640,000 = $80,000 X 8 (GRM)
In this example - using a GRM of 8 - a property that generates $80,000 a year in gross rental income has a value of $640,000.
Calculate a GRM
To calculate a GRM, take the listed selling price and the annual gross rental income and divide one into the other, the equation looks like this:
GRM = Sales Price / Annual Gross Rents
8 = $640,000 / $80,000
The major difference in valuation between the income approach to valuation via the appraisal and the GRM approach to valuation is the former uses net income in the calculation of valuation while the latter uses gross income.
Winston Rowe & Associates has a core business focus providing expert knowledge, while leveraging their strategic capital source relationships, providing clients with the most competitive rates and terms in the commercial real estate markets.
They can be contacted at 248-246-2243 or visit them on line at http://www.winstonrowe.com