What does "gross rent multiplier" (GRM) measure?

The gross rent multiplier (GRM) is a metric specifically designed to evaluate the potential of rental properties for investment. It represents the relationship between the price of an investment property and its gross rental income. Essentially, the GRM allows investors to quickly assess how long it will take for the investment to pay for itself through rental income.

To calculate the GRM, you divide the property's purchase price by its annual gross rental income. For example, if a property is purchased for $200,000 and generates $20,000 in annual rental income, the GRM would be 10. This figure can then be used to compare similar properties to determine which might be the best investment opportunity.

This focus on rental income potential distinguishes the GRM from the other options. While total income and the property's worth are important considerations in a broader investment analysis, the GRM specifically looks at rental performance relative to purchase price. Moreover, the GRM does not take into account the square footage of properties, as that measurement does not directly influence the relationship between price and rental income.