Gross Rent Multiplier, or GRM, is one of the traditional measurements for real estate investors to evaluate any given opportunity. It is so common that this number is one of the first numbers that almost all real estate agents would provide to their prospective investors. Let’s look at the formula

GRM = Sales Price / (Gross Rent * 12)

For example, a sales price of $120,000 with a gross total rent of $1,000 will result in a GRM of: 120,000 / ($1,000 * 12) = 10. And what does this “10” represent? It means “it will take 10 years of rent collection, disregard all the necessary expenses, for you to recover your initial investment.”

At DoorInvestor, we treat GRM as another quick evaluation figure, but we do not weight this number a lot, because as you can see this formula does not take expenses into consideration. When doing an in-depth analysis, it is not possible to exclude expenses into the calculation, because the amount of expenses involved in maintaining any investment property directly impacts the bottom line (aka your net profit). That is why we put GRM in the similar importance category as the 1% rule.

Speaking of GRM, we feel that one way to maximize your rental return (aka increase your GRM) is by using your investment property as a short term rental. STR is not for everyone but we as real estate investor should all learn about it, before deciding whether it is useful for us or not. We found an online course that you may also find useful, to accelerate your learning curve on the subject of short term rental.