Gross Rent Multiplier (GRM)

Gross rent multiplier is purchase price divided by annual gross rent. It is the fastest rental screen because it needs only two numbers from a listing. It sits alongside cash on cash return in any property investment calculator as the napkin test that comes before the full income statement.

The default deal has a GRM of 8.0: $250,000 divided by $31,200 of annual rent. Monthly rent is 1.04% of price, so it meets the old 1% rule. Under typical expenses a GRM of 8 implies a cap rate near 7.6%, close to the 8.0% the full statement produces.

GRM ignores every expense and all financing, so it cannot tell you the cash on cash return. What it can do is sort a list of listings by rent per dollar of price in minutes. Properties with a GRM under 8 are the ones likely to produce a cash on cash return above 8% with a normal loan; properties above 12 rarely will. Screen with GRM, then run cash on cash on the survivors.

Further reading: Gross Rent Multiplier (GRM) on Wikipedia.