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A gross income multiplier (GIM) is a way to get a rough estimation of the value of an investment property. It’s one of the quickest ways to value something via “napkin math”.

The GIM is used in valuing multi-family properties, retail centers, warehouses, etc.

What is a Gross Income Multiplier (AKA Gross Rent Multiplier)?

A gross income multiplier (GIM) is a way to get a rough estimation of the value of an investment property. It’s one of the quickest ways to value something via “napkin math”.

The GIM is used in valuing multi-family properties, retail centers, warehouses, etc.

However, true professionals know that this method has severe limitations. The gross income multiplier does not consider the cost of factors such as taxes, vacancy rates, utilities and all the maintenance the property will need.

Other, more detailed methods commonly used to value commercial properties include a DCF (Discounted Cash Flow) and the capitalization rate method.

How do you calculate a Gross Income Multiplier (GRM)?

It is calculated by dividing the property’s sale price (not asking price) by its gross annual rental income.

Please note we said ANNUAL and not MONTHLY, as this is what throws off most people.

 

To get an indication of the GRM for a specific property type, your best course of action would be to call a local real estate broker or commercial real estate appraiser. Additionally, with the abundance of information we have in this digital age, it should be simple to determine a rough GRM from online commercial real estate listing sites and commercial brokers with sales information.

Real World Examples of using a Gross Income Multiplier

Example 1

Tom has recently sold his rental house in Pensacola, Florida. He was receiving $1,200 a month in rent and received $300,500 for his house. In this scenario, what would the gross income multiplier be?

$350,500 / ($1,200 * 12) = 24.34

Example 2

Lashandra sold her retail strip center in rural California a month ago. She was receiving $40,000 per year. The property sold for $550,000. In this scenario, what would the gross income multiplier be?

$550,000 / $40,000 = 13.75

Example 3

Mason has his house on the market for $700,000 in New York City. He has received an offer for $680,000 and has accepted. Mason was receiving $1,000 per week in rent and will continue until after the house is sold. In this scenario, what would the gross income multiplier be (This one is made to be tricky)?

$700,000 / ($1,000 * 52) = 13.46

Now that you have a full understanding on what a Gross Income Multiplier is, let us put you to the test! Try these five problems below in our quiz format and see how you do.

Gross Income Multiplier

Drawbacks to Gross Income Multiplier Method

The strongest argument against using the Gross Income Multiplier (GRM) is because it is a rather crude valuation technique. Changes in interest rates (which in effect discounts the time value of money), sources or revenue (quality), deferred maintenance, property age the quality of a property manager  and expenses are not explicitly considered.

The GRM is not to be used for purchasing but it can be a fantastic starting point.

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