Gross Rent Multiplier

The Gross Rent Multiplier is a calculation that allows investors find the market value of a real estate investment property. It is an excellent first quick value assessment tool to roughly estimate the value of a real estate investment property before considering operating expenses, debt service, and income taxes. It is the ratio of the price of a real estate investment to its annual rental income before expenses such as property taxes and insurance for rental properties.

A Gross Rent Multiplier of 5.0, for instance, indicates the rental property price is five times the gross scheduled income. Which means the real estatae investment property would have to collect the income from rents (assuming all units were totally occupied) for five years to total the price. Which means that the higher the Gross Rent Multiplier is, the less income there is compared to the price, and therefore more years are required to collect it.

The lower the Gross Rent Multiplier the better. For the investor, a real estate investment property with a higher Gross Rent Multiplier (perhaps over 12) is a poorer opportunity, whereas a real estate investment property with a lower one (perhaps under 9) is better. A Gross Rent Multiplier of zero would be good, but highly unlikely.

The following values have an impact on the Gross Rent Multiplier calculation for real estate investment properties:

    -PURCHASE PRICE
    -MONTHLY RENT

How to calculate the Gross Rent Multiplier? Gross Rent Multiplier = Purchase Price / Gross Scheduled Income (Annual Income) Example: An investor purchases a real estate investment property for $62,000 with a monthly rent of $1,000. Purchase Price :  $62,000 Monthly Rent :  $1,000 Annual Income (Monthly Rent * 12) :  $12,000 STEP 1: Formula Gross Rent Multiplier = Purchase Price / Annual Income STEP 2:Substitute values Gross Rent Multiplier = $62,000 / $12,000 STEP 3: Results Gross Rent Multiplier = 5.17