Gross Rent Multiplier (GRM): Formula, Benchmarks and Its Blind Spots

The Formula

GRM = Purchase Price ÷ Gross Annual Rent

Gross annual rent is twelve months of scheduled rent from every unit, before vacancy and before any expense. Other income such as parking or laundry is usually left out; if it's included, the same choice has to be made on every property being compared.

The reciprocal is gross yield:

Gross Yield = Gross Annual Rent ÷ Purchase Price = 1 ÷ GRM

A GRM of 10 is a 10% gross yield. The two numbers carry identical information stated in different directions.

The Duplex, Worked

I run the same $425,000 duplex across this site so the numbers agree wherever a reader lands. It rents for $3,800 a month.

Gross annual rent:  $3,800 × 12 = $45,600
GRM = $425,000 ÷ $45,600 = 9.3
Gross yield = $45,600 ÷ $425,000 = 10.7%

The price equals 9.3 years of gross rent. That is where GRM stops. The same duplex loses $2,280 to 5% vacancy and $17,100 to operating expenses, which leaves $26,220 of NOI and a 6.2% cap rate. Vacancy and expenses take 42.5% of the gross rent before the mortgage is paid, and none of that is visible in the 9.3.

Running It Backward to Estimate Value

GRM also works as a pricing shortcut:

Estimated Value = Gross Annual Rent × Market GRM

The market GRM comes from recent sales of similar buildings in the same submarket: sale price divided by the gross rent each building was collecting when it sold. Hold the duplex's $45,600 of rent and change only the multiplier:

Each 0.1 of GRM is $4,560 of price on this rent. The shortcut is only as good as the comps behind it. If the sold buildings carried different expense loads, a different unit mix, or rent rolls well below market, their multipliers don't transfer.

Rent works through the same formula. At a constant 9.3 GRM, raising the duplex's rent by $300 a month, $3,600 a year, implies about $33,550 of added value. That arithmetic is what makes a below-market rent roll look like hidden equity. It assumes the market will pay the same multiple on the new rent, which is an assumption about buyers, not a fact about the building.

Monthly vs Annual GRM

Annual rent is the convention, and it produces multipliers in the single or low double digits. Some sources compute GRM on monthly rent instead:

Monthly GRM = $425,000 ÷ $3,800 = 111.8

111.8 ÷ 12 = 9.3. Both describe the same duplex. A monthly figure is roughly twelve times the annual one, so comparing a monthly GRM from one source against an annual GRM from another is a unit error, not a finding.

What GRM Is Good For

GRM earns its place at one step: cutting a long list down to a short one. With twenty listings in a submarket and a known range of recent sale multipliers, anything priced far above that range can be set aside, and the handful at the low end get the full underwriting. It takes two numbers per property, both published, with nothing to estimate.

It is also useful for spotting a listing that doesn't match its neighbors. A building priced well below its submarket's multipliers is either mispriced or carrying something the gross rent doesn't show. GRM can flag the gap. It cannot say which explanation is true.

The Trap: GRM Ignores Every Expense

Two buildings at the same GRM can produce very different income, because GRM divides by rent before anything is taken out of it.

Take the duplex at 9.3 and a second building at the same price and the same rent, where vacancy and operating expenses take 55% of gross rent instead of 42.5%. Owner-paid heat, a recent tax reassessment, or an older building with higher repair costs would each do it.

GRM ranks them as equal. Cap rate puts them 1.4 points apart. On the same $340,000 loan at 7%, the second building runs $20,520 − $27,144 = −$6,624 a year, against the duplex's −$924.

The error isn't random. The buildings with the heaviest expense loads screen cheapest on GRM, because the market prices their higher costs into a lower price per dollar of rent. A GRM screen sorts the most expensive-to-run buildings to the top of the list.

Converting GRM to Cap Rate

The two metrics connect through the expense ratio:

Cap Rate = (1 − Vacancy and Expense Ratio) ÷ GRM

On the duplex: (1 − 42.5%) ÷ 9.32 = 6.2%. The conversion works, but it needs the expense ratio, and once that is known the cap rate can be computed directly from NOI. GRM is the metric that skips the expense ratio, so a GRM benchmark can't stand in for a cap rate benchmark without the one input GRM was built to avoid.

GRM Ranges by Market

The major market surveys report cap rates, not GRM, so I don't print a table of GRM ranges by city. Any such table is either built from a local set of sales or made up. What the surveys do support is the mechanism behind GRM ranges, by running the conversion above in reverse:

GRM = (1 − Vacancy and Expense Ratio) ÷ Cap Rate

Marcus & Millichap's 2025 cap rate research brief reported average multifamily cap rates of 4.74% for Class A, 4.92% for Class B, and 5.38% for Class C in the first quarter of 2025. Translate those into GRM at three expense ratios, which are my assumptions and not survey data:

Two things fall out. Across a single row, the expense ratio alone moves GRM by more than three points at an identical cap rate. And a Class C building with high costs lands at the same 9.3 as the duplex, even though its 5.38% cap rate prices each dollar of NOI higher than the duplex's 6.2% does. GRM ranges by market are cap rate ranges filtered through local expense loads, which is why a GRM from one market doesn't carry to another. Current cap rate ranges by sector and class are in What Is a Good Cap Rate?.

The Rent Roll Trap

The denominator is only as honest as the rent behind it. A listing that quotes scheduled or market rent on a building collecting less produces a multiplier no buyer will experience.

Suppose the duplex were listed at $425,000 with one unit leased at $1,600 instead of $1,900. Collected rent is $42,000, and the real GRM is $425,000 ÷ $42,000 = 10.1, not 9.3. Priced at the 9.3 the listing implies, $42,000 of rent supports about $391,450. The $33,550 gap is the listing charging for rent the building doesn't collect yet.

Running GRM on collected rent from a rent roll, rather than asking rent from the flyer, is what closes the gap. Adding vacancy to the denominator goes one step further:

GRM on Effective Gross Income = $425,000 ÷ ($45,600 × 95%) = $425,000 ÷ $43,320 = 9.8

That version still ignores operating expenses, but it stops treating a vacant unit as paid.

GRM Compared With Other Metrics

GRM sorts. Cap rate values the building. Cash-on-cash and DSCR test a specific purchase with a specific loan. Each row down the table sees something the row above it can't.

FAQ

What is the gross rent multiplier formula?

GRM = Purchase Price ÷ Gross Annual Rent. On the duplex, $425,000 ÷ $45,600 = 9.3.

What is a good GRM?

Lower means more rent per dollar of price, but the number only means anything against recent sales of similar buildings in the same submarket. A 9.3 can be expensive in one market and cheap in another, and GRM carries no information about which. It also says nothing about expenses, so a low GRM can belong to a building that costs the most to run.

How do I find the GRM for my market?

Take recent sales of comparable properties and divide each sale price by the gross annual rent the building was collecting at sale. The range of those results is the local GRM. Brokers and appraisers keep this data; listings alone show asking prices, not sale prices.

What is the difference between GRM and cap rate?

GRM divides price by gross rent and ignores expenses. Cap rate divides NOI by price and counts them. The duplex reads 9.3 GRM and 6.2% cap rate. A building at the same GRM with a 55% expense ratio reads 4.8%.

Can I convert GRM to cap rate?

Only with the expense ratio: Cap Rate = (1 − expense ratio) ÷ GRM. With that input, the cap rate can be computed directly.

Should GRM use monthly or annual rent?

Annual is the convention. A monthly GRM is about twelve times larger, 111.8 on the duplex against 9.3 annual, and the two can't be compared.

Related Reading

• Cap Rate Explained: the metric that counts the expenses GRM skips
• What Is a Good Cap Rate?: published cap rate ranges by sector and class
• Net Operating Income Explained: building the NOI that turns a GRM screen into a valuation
• Cash-on-Cash Return Guide: the return once the loan enters
• Break-Even Occupancy Analysis: how much vacancy the deal can take once expenses and debt are counted