As in any profession or industry, investment real estate has its own nomenclature — our own language so to speak. Many of the words/concepts we use have been reduced to abbreviations. An example is NOI — Net Operating Income. The one we’ll talk about today is GRM — Gross Rent Multiplier. For those of us who’ve been in the business since Hector’s pup died, it gets even shorter, often referred to as Times Gross — as in “How many times gross do properties sell for in this town?”

First thing we should do is lay out what Gross Rent even means. It refers to the gross scheduled rent of a given property, which will also generally include laundry income if applicable. It should be understood that it’s virtually universal that you’ll be referring to a year’s income — not a month’s. I say that, but there are places that will use monthly income, a pain in the rear end if there ever was one. Numbers are almost always computed using annual figures when producing an analysis on residential income properties. That’s not to say using monthly figures won’t work, but it’s a lot more work than necessary. [Read more...]