The Gross Rent Multiplier
(GRM)
The GRM is calculated by Dividing the sale price
by the yearly potential gross income.The typical range for
St Louis market is
8 to 10 Times.
Example : Sales
price of $200,000, gross income of $1,700 per month (20,400
annually) $200,000 divided by $20,400 = a GRM of
9.8
Conversely: An
income of $20,400 times GRM of 9 = $183,600 ...... Or, $20,400
X 10 = $204,000. Operating expenses, debt service
and income tax consequences are not included in the
GRM
Net operating income and
Capital Improvement
Net operating income is determine by subtracting vacancy amount
and operating expenses from the gross income .Capital improvements
include primary components with an extended life.
Capitalization
(CAP) Rate
The ratio of the net operating income divided by the
sales price (value), expressed as a percentage to estimate
property values. The Cap Rate calculation incorporates the selling
price, gross rents (income), vacancies, and operating expenses to
provide a reliable estimate of value. Cap Rates may vary based on
location, desirability, general condition,
etc
Example: A property has a Net operating
Income (NOI) of $155,000 and the asking price is
$1,200,000
Cap Rate equals NOI divided by Price or
$155,000 divided by $1,200,000 = .129 . or 12.9%. . If a
desired Cap Rate is 12.9%, with $130,000 NOI, the value would
be $1,007,750 Estimated value =
Net NOI divided by Cap Rate
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