What a Gross Rent Multiplier of 20 Means
A GRM of 20 means the purchase price equals 20 years of gross rent. A GRM of 20 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 20x GRM on a $300,000 property
- Rent needed: $1,250 a month, $15,000 a year
- Rent as a percent of price: 0.42% (below the 1% rule, which is a GRM of 8.3)
- Gross yield: 5.0%
- Collected after 5% vacancy: $14,250
- Implied NOI at a 36% expense ratio: $9,120
- Implied cap rate: 3.04%
The implied lines are what a 20x 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 20 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 | $415 | $4,980 | 0.41% |
| $150k | $625 | $7,500 | 0.42% |
| $200k | $835 | $10,020 | 0.42% |
| $250k | $1,040 | $12,480 | 0.42% |
| $300k | $1,250 | $15,000 | 0.42% |
| $350k | $1,460 | $17,520 | 0.42% |
| $400k | $1,665 | $19,980 | 0.42% |
| $500k | $2,085 | $25,020 | 0.42% |
| $600k | $2,500 | $30,000 | 0.42% |
| $750k | $3,125 | $37,500 | 0.42% |
| $1m | $4,165 | $49,980 | 0.42% |
Cap rate a 20x 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% | 3.56% | 3.45% |
| 30% | 3.32% | 3.22% |
| 36% | 3.04% | 2.94% |
| 40% | 2.85% | 2.76% |
| 45% | 2.61% | 2.53% |
| 50% | 2.38% | 2.30% |
Check your own property against 20x
The calculator is loaded with the example above and a target GRM of 20. Replace the numbers with yours.
Gross rent multiplier
20.00x
Very highVery high. Sixteen or more years of gross rent. Premium coastal pricing; income is a small part of the return.
$300,000 price / $15,000 gross rent
Gross screens
- Rent to pricemonthly rent / price
- 0.42%
- 1% ruleneeds $3,000 a month
- Below it
- Gross yieldannual gross rent / price
- 5.00%
- Monthly GRMprice / monthly rent
- 240
- Gross paybackyears of gross rent to equal price
- 20.0 yrs
At a 20.0x GRM
- Price this rent supports
- $300,000
- Asking is below that by
- $0
- Rent needed at asking pricevs $1,250 now
- $1,250
What this GRM implies
- Collected after vacancy
- $14,250
- Operating expenses36% of collected
- -$5,130
- Implied NOI
- $9,120
- Implied cap rate
- 3.04%
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 20 questions
Is a GRM of 20 good?
Not for income. A 20x GRM means rent is only about 0.42% 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 20 on a $300,000 property?
$1,250 a month, or $15,000 a year. Divide the price by the GRM and then by twelve: $300,000 / 20 / 12 = $1,250.
What cap rate does a GRM of 20 imply?
About 3.0% 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.
Related: what is a good GRM, GRM vs cap rate, valuing property with GRM.