GRM

[Basically Rectangular]

So, if I'm reading this correctly, I take the Indicated Value of my Subject which is $199,350 / $18,576 (1007 Result on Subject) = 10,7 GRM X 12 = 128.77 and that's what I put in the GRM.

I would not use the indicated value of the subject to base the GRM. (Kind of defeats the purpose).
Look at all rentals within the past two-three years. One by one, check the listing history to see if that property sold. Record the rents which have also sold. Sometimes they sold a few years before or after the rental date, so if there is limited data it can get a little bit messy and you might adjust for market conditions on either the sale or rental price, depending. The GRM is not as clean as it is taught in classes, especially because the comparables will vary in size, quality and condition. Collect and compile the data in the best way that you can.

 

[ZZGAMAZZ]

The sales used to develop the grm do not have to be the same as you "comparable" sales and very seldom are. Unless you are in a market with a high number of noo properties.

Why not (asking seriously). Presuming that the comps reported in the SCA are obtained from your MLS, they inevitably would include the rent/unit information, which I always presumed, as I was taught, to be the best indicators of market value, especially if the lease terms are relatively current and still in effect, supported by active listings with more recent rents, if possible.

 

[ZZGAMAZZ]

Pros & Cons of Using Gross Rent Multiplier to Evaluate Investment Properties

Gross Rent Multiplier (GRM) is the ratio of the price of a real estate investment to its annual gross potential income. GRM can be thought of as the number of years it would take for a prope…

ryanrauner.blog

Thanks for the attachment. Sure is succinct.

 

[DWiley]

So, if I'm reading this correctly, I take the Indicated Value of my Subject which is $199,350 / $18,576 (1007 Result on Subject) = 10,7 GRM X 12 = 128.77 and that's what I put in the GRM.

NO!! NO!! NO!!. A thousand times NO!!! Sadly, I have seen this in many reports, but it is absolutely 100% incorrect/improper (often with comments admitting that is what was done).

The subject's GRM is not derived using the subject's value. The whole point of doing the income approach is to derive the value using a separate method. Using a predetermined value for the subject to derive its GRM is NOT an income approach. Just taking the subject's value and dividing by the rent is an excellent way to get an invitation to appear before a state board.

As others have said, the GRM is derived by taking actual comparable sales and dividing them by their rent (that rent may be actual rent at time of sale, or it may be market rent as shown by data). Each of those comps will indicate a GRM. Those indicated GRMs are then reconciled into a final GRM that you apply to the subject's estimated market rent to obtain a value from the income approach.


Example:

Sale Price Rent /Month GRM
1 200,000 1800 111.1
2 190,000 1750 108.6
3 210,000 1900 110.5

With data like this, one might conclude a GRM for the subject of 110 or 111. That would then be applied to the subject's estimated market rent to get the indicated value. By the way, in my market it is unlikely you would get data that "clean"

I strongly suggest reviewing the material from your income approach.

 

[alebrewer]

So, if I'm reading this correctly, I take the Indicated Value of my Subject which is $199,350 / $18,576 (1007 Result on Subject) = 10,7 GRM X 12 = 128.77 and that's what I put in the GRM.

Doing it this way is circular. You need to use the market to extract the GRM (via sales and rentals of comparable properties), then apply it to the subject rents. Doing it this way is akin to 'backing into' the CA... It's also a good idea to reconcile how you arrived at your GRM. Which sales did you weigh heaviest and why.

 

[Dublin ohio]

Why not (asking seriously)

If they are not rented at time of sale

 

[DWiley]

Why not (asking seriously). Presuming that the comps reported in the SCA are obtained from your MLS, they inevitably would include the rent/unit information, which I always presumed, as I was taught, to be the best indicators of market value, especially if the lease terms are relatively current and still in effect, supported by active listings with more recent rents, if possible.

When one selects comps, one should select the best comps.

The best (most similar) comps for use in the comparison approach may not have been rented when they sold (many 2-4 unit properties are owner occupied). Throwing out a really good SCA comp just because it wasn't rented would be poor practice.

Yes, I know the form makes one's life easier if the comps are the same

 

[The Bob]

IMO the GRM approach is flawed. It's more of an indicator than a valid valuation method. Somewhat like $/SF.
Every time I do a 1007 I ask the buyer how he values the income aspect of the property. I have never gotten the same answer twice. Some focus on cash flow. Some don't even care if they break even, they are looking for the blue sky to come. And this is borne out in the market...the GRM's are all over the place.

 

[alebrewer]

There certainly are myriad reasons for purchasing an investment property. At the end of the day, though, there will always be a mathematical model for representing the relationship between 'market' rents and overall market value of the property. DCF is one way to represent this relationship mathematically, but GRM is a valid way to do so as well...

 

[Bobby Bucks]

I’ve had a habit over the years of entering into a file every comparable I come across that was a rental property at the time of sale. I takes very little time and is a great resource when you need rental data.