The gross rent multiplier is determined by which method?

The gross rent multiplier (GRM) is a useful tool in real estate to estimate the value of an income-producing property based on its rental income. It is formulated by taking the sales price of a property and dividing it by the property's gross rents. This method provides a simple way to assess the relationship between the rental income generated by a property and its market value, allowing investors to quickly evaluate investment opportunities.

Using the sales price divided by the gross rents creates a multiplier that can be used as a baseline for comparing other similar properties. A lower GRM often indicates that a property might be undervalued relative to its rent potential, while a higher GRM might suggest overvaluation.

The other methods mentioned do not align with how the gross rent multiplier is typically computed. For example, subtracting total expenses from gross rents relates more to calculating net operating income than determining GRM; multiplying gross rents by the cap rate is used in capitalization rate calculations, and calculating net operating income involves expenses and is not relevant to the direct computation of GRM. These alternative methods focus on different aspects of real estate valuation or investment analysis rather than the straightforward relationship encapsulated by the GRM.