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Simple English definitions for legal terms
gross-rent multiplier
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A quick definition of gross-rent multiplier:
Gross-Rent Multiplier: The gross-rent multiplier is a way to figure out how much a property is worth by comparing its market value to the amount of money it makes in rent each year. It's like a special calculator that helps people decide how much they should pay for a rental property. The gross-rent multiplier is also called the gross-income multiplier and is abbreviated as GRM.
A more thorough explanation:
Definition: The gross-rent multiplier (GRM) is a ratio that measures the relationship between the market value of a rental property and its annual gross rental income. It is used as a method to estimate a property's market value.
Example: If a rental property has an annual gross rental income of $50,000 and a market value of $500,000, the gross-rent multiplier would be 10 ($500,000 ÷ $50,000 = 10). This means that the property's market value is 10 times its annual gross rental income.
The gross-rent multiplier is a useful tool for real estate investors and appraisers to quickly estimate the value of a rental property. By comparing the GRM of similar properties in the same area, they can determine if a property is overpriced or a good investment opportunity.