Ever wonder how most real estate investors determine how much to pay for an investment property? The most common method used is called the Gross Rent Multiplier (GRM). To determine the GRM, the investor identifies three similar properties in similar neighborhoods that were rented at the time of sale and divides their sales price by the monthly gross rent. For example, three similar homes recently sold in the same neighborhood. Home A sold for $75,000 with a monthly rent of $600, giving it a multiple of 125. Home B sold for $80,000 with a monthly rent of $650, giving it a multiple of 123. Home C sold for $90,000 with a monthly rent of $750, giving it a multiple of 120. The investor now has come up with a GRM range of 120 to 125, giving them measurable data to determine how much they should pay for a similar type of investment property. The tricky part is knowing about or finding other investment properties that were rented at the time of sale.
If you are ready to buy or sell, call Mary Staton or Bert Ward - they’ll be happy to answer any questions.