Real Estate Investing

Real estate investing is the purchase, ownership, management and sale of property for profit through rental income, appreciation or both. Gross rent multiplier is the investor's first screen: it sorts a list of properties by rent per dollar of price in minutes, before any expense or financing is known.

Investors use a family of measures in sequence. GRM and the 1% rule screen listings. Cap rate prices the survivors on net income. Cash on cash return adds the mortgage and measures the return on the investor's own cash. IRR adds the holding period and the sale.

GRM earns its place at the front because it is fast and roughly calibrated: under typical expenses a GRM of 8 or less usually means a property can carry a normal loan, and a GRM above 12 usually means it cannot. It loses its place as soon as a property is on the short list, where the expenses it ignored decide the outcome.

Further reading: Real Estate Investing on Wikipedia.