Evaluating Rental Investments - The Gross Rent Multiplier

If you like what you read, check out my first book, My Happy Assets at http://www.myhappyassets.com/ only $1.99 and the complete second book, Small Business Coffee Hour, Three Essential Ingredients for a Successful Business at http://www.smallbizcoffee.com/, only $1.99. Happy Reading!

www.myhappyassets.com

_______________________________________________________________________________

The gross rent multiplier is your “rule of thumb” metric that you can use to quickly filter out bad property investments. You should be able to quickly run this ratio and decide if the investment is worth taking a further look or not. The gross rent multiplier is found simply by taking the Sales Price of the property and dividing it by the Gross Yearly Rents

GRM = SP/GYR

As a rule of thumb, anything over 8 is difficult to cash flow from.

For example, let’s say you come across a four-plex for sale at a list price of $170,000. The units rent for $500 a month or a total of $2,000 a month. Yearly this would equate to $24,000. To find the gross rent multiplier, you simply take the sales price of $170,000 and divide it by the yearly rents of $24,000 to arrive at 7.08. This property warrants a further look.