How does an appraiser determine the "gross rent multiplier"?

The gross rent multiplier (GRM) is determined by dividing the sale price of comparable rental properties by their gross rents. This method provides a quick and practical way for appraisers to estimate a property's value based on its income-generating potential. By analyzing multiple comparable properties, an appraiser can derive a multiplier that reflects the relationship between property sales prices and rental income, allowing for effective comparisons in the valuation process.

Estimating the annual rental income of the property alone does not establish the GRM, as it does not consider the sale prices of comparables. Similarly, calculating the net operating income focuses on the property's profitability after expenses rather than comparing sales prices to rental income. Comparing purchase prices of similar properties may give some insights but does not specifically address the rental income aspect necessary for calculating the GRM. Thus, the method of dividing sale prices by gross rents is crucial in deriving the gross rent multiplier effectively.