Fri, Jul 03, 2009
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GRM And The Confusion That Follows... |
boatboy
47 Posts
Member Since: 06/17/2008
Amherst, OH
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Posted: 18:53 on 07-21-2008
I am starting to invest in multi-family properties and read extensively on them.
One thing I can't get past in the GRM. I understand how to calculate and what it means, however, how do you increase it?
I understand that you can fix it up and increase rents that multiple that by the current GRM and get a higher valuation, however, how can you make this increase... and what are all the ways....
Thanks in Advance for any help! : )
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Birddog1
580 Posts
Member Since: 09/06/2003
Lakeville, MA
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Posted: 08:29 on 07-24-2008
Cap rate is a much easier tool to use. Take Net Income, divide it by Asking price, and you get the Cap.
Example $100,000 NOI, $1,200,000 Asking price = 8.3% Cap. Simple.
The Higher the cap, the stronger the return
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kelvin_REI
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Member Since: 05/16/2007
Redondo Beach, CA
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Posted: 20:17 on 08-23-2008
GRM can be a bit misleading in determining true value of a property. while it's great getting an idea of the current gross... you don't get a sense of the expenses.
cap rate is nice too... but that seems so arbitrary - unless it's near neighborhood cap rate, i guess you get a better sense of value in an average sense ... than GRM.
to answer your question...
Market Value / Annual Gross Income = Gross Rent Multiplier ( GRM)
i'm not too sure what part you wanted to raise... i would imagine you'd want to find a lower GRM than a higher one. a higher grm would imply a lower ann. gross inc.. generally speaking, a higher www.ann.gross income would be preferred than a lower one.
anyway... hope this helps!
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Kelvin
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NewKidInTown3
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Frederick, MD
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Posted: 09:29 on 08-24-2008
There are a couple of GRM formulas in common use.
GRM = Sale Price / Monthly Gross Income
GRM = Sale Price / Annual Gross Income
Regardless of which formula you are using, you increase the GRM by raising the sale price or by lowering your gross income.
When comparing similar properties in the same area or location, the lower the GRM, the more profitable the property. This statement assumes that operating expenses are proportionate for the properties being compared.
Since the GRM calculation doesn't include operating expenses, this statement might not hold true for similar properties where one of the properties has significantly higher operating expenses.
While the GRM is useful in providing a rough estimate of value, capitalization rate is a more reliable tool for estimating the value of income producing properties since vacancy amount and operating expenses are included in the cap rate calculation. .
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boatboy
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Posted: 10:46 on 08-25-2008
Great answer. Thank you!
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