The gross rent multiplier is a simple ratio investors use to quickly screen income properties. It is calculated by dividing the property's price by its gross annual rental income, giving a rough sense of how many years of rent it would take to equal the price.
A lower GRM can indicate a better value relative to the rent a property produces, making it handy for comparing multiple listings at a glance. Because it uses gross rent, it ignores operating expenses, vacancy, and financing.
GRM is best used as a preliminary filter rather than a definitive measure. Investors follow up on promising properties with more detailed analysis using net operating income, cap rate, and cash flow, which account for costs the GRM overlooks.