How gross rent multiplier works

Gross rent multiplier asks how many years of scheduled rent it would take to equal the price, if rent never changed and nothing else were subtracted:

$$\text{GRM} = \frac{\text{price}}{\text{annual rent}}$$

A $360,000 price on $36,000 of scheduled rent is a GRM of 10. Raise rent to $45,000 and GRM falls to 8. The building did not get cheaper. Each dollar of rent now buys less price, which is a lower multiple.

How cap rates work divides NOI by price, which is a rate, not a multiple. Cap rate and GRM are both screening numbers. They are not the same screen.

Scheduled rent is not collected rent. Vacancy, operating expenses, and debt service all sit after this line. A property with a GRM of 8 can still have negative cash flow if expenses and the loan eat the rent.

How rental cash flow works is that later chain. How cash-on-cash return works is leftover cash over the equity cheque.

The cap rate calculator on this page wants NOI, not scheduled rent. Use GRM when NOI is not yet known. Use cap rate when it is.

A lower GRM means more rent per dollar of price. It does not mean a better building. One listing can have a low GRM because the rent is unsustainably high, or because the building needs capex the rent has not funded.

How implied cap value works turns a cap rate into a price. GRM turns rent into a price multiple. Both are shortcuts until NOI and the loan are on the page.

The two teaching rows are $360,000 on $36,000 of rent (GRM 10) and $360,000 on $45,000 of rent (GRM 8). They are not vacancy, not opex, and not a loan. This is educational material, not financial advice.