Time Value of Money

The time value of money is the principle that a dollar received today is worth more than a dollar received later, because today's dollar can be invested and earn a return in the meantime. A gross rent multiplier ignores it. The tenth year of rent counts the same as the first.

That simplification is part of why GRM is quick, and it is also why GRMs rise and fall with interest rates. When rates fall, future rent is worth more today, and buyers accept higher multipliers. When rates rise, the same rent is worth less and multipliers tend to compress, even if nothing about the property has changed.

A market GRM from comparable sales already carries the interest rate environment of the months when those sales closed. When rates have moved sharply since then, older comps can mislead. Weight the most recent sales more heavily, or check the result against a discounted cash flow at today's rates.

Further reading: Time Value of Money on Wikipedia.