Assume you buy a five (5) unit residential property for $200,000 that will produce a monthly rental income of $3,000 and has a vacancy rate of 3%

Economics Aug 06, 2020

Assume you buy a five (5) unit residential property for $200,000 that will produce a monthly rental income of $3,000 and has a vacancy rate of 3%. (2) Calculate the GRM ? (2A) How much time will it take for the subject property to pay for itself through rental income? (2B) What is one of the limitations of the Gross Rent Multiplier ?

Expert Solution

GRM = Property Price / Gross Annual Rental Income

GRM = $200,000/( 3000*12)

GRM =200000/36000

GRM =5.55

So, in about 5.55 years property will be able to pay itself.

Cons of using the GRM

Operating expenses are not factored into the GRM calculation.
Vacancy factor from normal unit turns and poorly maintained property isn’t taken into consideration with the GRM.
GRMs are only useful when comparing similar property types in the same neighborhood or market.

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