Encyclopedia
Gross rent multiplier (GRM)
Price divided by gross annual rent. It's a quick screen that ignores expenses.
For example: An investor uses GRM to sort listings, then works out net operating income (NOI, the income left after running costs) on the ones worth a closer look. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say a small mixed-use building is listed at a price equal to a certain multiple of its gross rents. Comparing that multiple with similar buildings gives you a quick read on whether it is priced high or low before you dig into expenses.
What I’d tell a friend
Use the gross rent multiplier as a first screen only. It ignores expenses, which can differ a lot between buildings.
Why it matters to you
It's a quick screen, not a valuation. It ignores expenses, so two properties with the same multiplier can be very different deals.
How to use it in your deal
Buyers should use GRM only to screen, then move to NOI and capitalisation rate (cap rate, annual income after running costs divided by price). Two buildings with the same GRM can have very different expenses: an older building with oil heat and a leaky roof costs more to run than a newer one. Check whether gross rent is actual or potential, and whether it includes parking and laundry.
For residential buildings, remember the Residential Tenancy Act limits rent increases for sitting tenants, so upside may be slow. Sellers should be ready with real expense figures. Appraisers may use GRM with other approaches. Lenders size loans on NOI and debt coverage, not GRM.
Owners of mixed-use buildings should split commercial and residential rents, since they behave differently. Use it as a quick screen, then do the full income math before you offer.
Mistakes I see
Pricing on GRM alone. Using potential rent. Ignoring expenses and capital needs. Assuming rents can jump to market.
In BC and Vancouver
No statute defines GRM. Canada Mortgage and Housing Corporation (CMHC) publishes rental market data; BC's Residential Tenancy Act limits increases.
Official sources: BC Assessment appeal guide · Canada Mortgage and Housing Corporation
What it is
The gross rent multiplier is the price divided by gross annual rent. A lower number means you pay less for each dollar of rent.
It is quick to calculate, which makes it useful for comparing many properties at once.
Its limits
It does not account for operating costs, vacancy or the condition of the building. Two buildings with the same multiplier can have very different net incomes.
Follow up with net operating income and cap rate before you decide.
Questions to ask before you sign
- Is rent actual or potential?
- What are expenses?
- What's the NOI and cap rate?
- How fast can rents rise?
- What capital work is needed?
Keep reading
Related terms: Cap rate, Net operating income (NOI)
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.