Condominium

With a condominium, each buyer owns a single unit outright, while hallways, grounds and other shared spaces belong to all the owners together through an association. Condos are where gross rent multiplier is most likely to mislead, because association dues can take a large share of the rent and GRM does not see them.

A condo and a house with the same price and rent have the same GRM. If the condo's dues are $400 a month, its net income is $4,800 a year lower. On the $500,000 example, that turns a cap rate of about 5.8% into about 4.9%.

Condo dues also change. Special assessments for roofs, elevators or structural repairs can add large one-time costs, and underfunded reserves make them more likely. When screening condos, calculate GRM for sorting, but check the association's budget, reserve study and rental restrictions before treating any multiplier as a real comparison.

Further reading: Condominium on Wikipedia.