What does the term gross rent multiplier (GRM) help determine?

The gross rent multiplier (GRM) is a valuable tool used in real estate to assess the market value of an investment property based on its rental income. This metric provides a quick method for investors to evaluate the price of a rental property in relation to the gross rental income it generates.

By using GRM, you can derive the estimated market value by multiplying the property's gross rental income by the GRM. This allows investors to compare different investment opportunities quickly, as properties with similar income levels can be analyzed on a uniform basis, providing insight into which properties might be undervalued or overvalued in the current market.

For instance, if a property generates $30,000 in gross yearly rent and the GRM is 10, the estimated market value would be $300,000 ($30,000 x 10). This approach focuses solely on rental income as a primary factor for property valuation, making it particularly useful for investors looking to gauge the potential return on investment in a straightforward manner.

The other choices focus on aspects not directly tied to evaluating market value based on rental income, such as profit analysis or costs associated with financing or renovations, which fall outside the scope of how GRM is used.