What a Gross Rent Multiplier of 16 Means

A GRM of 16 means the purchase price equals 16 years of gross rent. A GRM of 16 is very high, the pricing of premium coastal markets. Gross rent is a small fraction of price and the investment case is almost entirely appreciation.

A 16x GRM on a $300,000 property

Rent needed: $1,565 a month, $18,780 a year
Rent as a percent of price: 0.52% (below the 1% rule, which is a GRM of 8.3)
Gross yield: 6.3%
Collected after 5% vacancy: $17,841
Implied NOI at a 36% expense ratio: $11,418
Implied cap rate: 3.81%

The implied lines are what a 16x GRM means if the property's costs are typical. Real taxes, insurance and dues move the cap rate while leaving the GRM unchanged, which is the reason GRM is a screen and not an underwriting number.

Rent needed for a GRM of 16 at other prices

The rent-to-price column is constant because GRM is a pure ratio of the two. Price only changes the dollar figure.

Price	Monthly rent	Annual rent	Rent / price
$100k	$520	$6,240	0.52%
$150k	$780	$9,360	0.52%
$200k	$1,040	$12,480	0.52%
$250k	$1,300	$15,600	0.52%
$300k	$1,565	$18,780	0.52%
$350k	$1,825	$21,900	0.52%
$400k	$2,085	$25,020	0.52%
$500k	$2,605	$31,260	0.52%
$600k	$3,125	$37,500	0.52%
$750k	$3,905	$46,860	0.52%
$1m	$5,210	$62,520	0.52%

Cap rate a 16x GRM implies at different expense ratios

The same GRM produces very different cap rates depending on what it costs to run the property. Single-family rentals in low-tax states run 25 to 35%. High-tax states, condos with dues, and older multifamily run 40 to 50%.

Expense ratio	Cap rate at 5% vacancy	Cap rate at 8% vacancy
25%	4.45%	4.31%
30%	4.16%	4.03%
36%	3.80%	3.68%
40%	3.56%	3.45%
45%	3.27%	3.16%
50%	2.97%	2.88%

Check your own property against 16x

The calculator is loaded with the example above and a target GRM of 16. Replace the numbers with yours.

Gross rent multiplier

15.97x

High

High. Twelve to sixteen years of gross rent. Appreciation markets. Hard to cash flow with a loan.

$300,000 price / $18,780 gross rent

Gross screens

Rent to pricemonthly rent / price: 0.52%
1% ruleneeds $3,000 a month: Below it
Gross yieldannual gross rent / price: 6.26%
Monthly GRMprice / monthly rent: 192
Gross paybackyears of gross rent to equal price: 16.0 yrs

At a 16.0x GRM

Price this rent supports: $300,480
Asking is below that by: $480
Rent needed at asking pricevs $1,565 now: $1,563

What this GRM implies

Collected after vacancy: $17,841
Operating expenses36% of collected: -$6,423
Implied NOI: $11,418
Implied cap rate: 3.81%

GRM skips expenses. These lines show what the ratio means if this property's costs are typical. Replace them with real figures before you rely on it.

GRM of 16 questions

Is a GRM of 16 good?

Not for income. A 16x GRM means rent is only about 0.52% of price per month, which will not carry a mortgage with a standard down payment. It can still be a reasonable buy in a strong appreciation market, but the return will come from price growth, not rent.

What rent do I need for a GRM of 16 on a $300,000 property?

$1,565 a month, or $18,780 a year. Divide the price by the GRM and then by twelve: $300,000 / 16 / 12 = $1,563.

What cap rate does a GRM of 16 imply?

About 3.8% with 5% vacancy and operating expenses at 36% of collected rent. The formula is (1 minus vacancy) times (1 minus expense ratio) divided by GRM. Higher taxes, HOA dues or insurance push the real cap rate lower than the implied figure.