How to Calculate Property Value on Rents

Commercial real estate agents and investors sometimes need to calculate an income property's value. This is easily accomplished using a formula known as the Gross Rent Multiplier or GRM, also called the Gross Income Multiplier. To use the GRM, you will need to know the sales prices of properties in the area of the subject property and the estimate of the rents that the subject property can bring. Be aware that the GRM formula is not a precise method of ascertaining value but can give you a rough estimate of what a property is worth.

Things You'll Need

• List of properties in the area that have sold, their sales prices and income
• Calculator

Instructions

1. Compile a list of properties in the area have sold lately, their sales prices and their gross monthly rents.

2. Divide the sales price of each property by the annual gross income (the rents) of that property. This is the GRM for the property. Do this for each comparable property and then come up with an average GRM for the sold properties.

3. Multiply the GRM for the comparable properties by the gross annual rents for the subject property. This amount is a rough estimate of the property's current market value.

Tips & Warnings

• Example:

• Property sold for $750,000 / $110,000 Annual Income = GRM of 6.82

• Subject Property's Annual Income=105,000 X 6.82= $716,100 (Rough estimate of value)

References

• All Business: Gross Income Multiplier