Income Approach On The 1004

[RebeccaF]

Hello I have a question, and I hope someone can answer. If you complete the income approach on the 1004 form, in my example I have completed the rent schedule (216) and it pulls the estimated market rent number into the 1004.lets say the GRM is 7, well it pulls in the "estimate Monthly market rent" (1600) times the GRM (7), which gives a value of $11,200. I thought the income approach to value was the Annual rent x the GRM, Obviously the value of $11,200 is not correct. Thanks for any assistance on understanding this form.

 

[The Warrior Monk]

The Gross Rent Multiplier (GRM) is a multiplier based on the monthly rent, where a Gross Income Multiplier (GIM) is a multiplier based on the annual rent.

 

[CANative]

The 216 form is the Operating Income Statement, not the rent survey which is form 1007. A GRM of 7 for a single family residence is not correct at all.

Find the market rent for the subject. Find sales of rented SFRs and find out their rent. Divide the sale price by the rent to get the GRM. Apply that GRM (range) to the subjects rent to get the value.

Really though, the income approach for a single family residence is rarely done.

 

[RebeccaF]

Thanks for the response, I must not be asking my question correctly, On the 1004 form it says Estimated Monthly market Rent ($1600) X Gross Rent Multiplier (7 (determined by MV 130,000/19200 annual rent) This calculates a value of $11,200,. I realize I must not be understanding something on the form, Thanks for you help.

 

[The Warrior Monk]

Gross Rent Multiplier (7 (determined by MV 130,000/19200 annual rent)

That's not a Gross Rent Multiplier; that a Gross Income Multiplier. The GRM is 81.25

 

[RebeccaF]

OH I see, thanks for clearing up that for me, I will keep studying!!!!!! Thanks for you time

 

[Michigan CG]

Rebecca, it appears that someone is teaching you the wrong way to do things. Market rent does not come from the subject and the GRM does not come from the subject market value/subject rent.

 

[CANative]

Looking at the form now. The first cell wants you to put in your estimated market rent (say $1,600); then there is a multiplication sign (x) and then a cell that wants you to enter the Gross Rent Multiplier you developed (that's the part where I said you had to find sales of rented houses and divide their sale price by their rental rate - $200,000 sale and it gets $1,400 per month = GRM of 143; next sale $175,000 and it gets $1,200 per month = GRM of 146; next sale $220,000 and it gets $1,600 per month = GRM of 138.

So you have GRMs of 143, 146 and 138. You decide that 140 is a reasonable GRM, so you enter 140 in the cell we talked about.

1,600 in first cell (monthly rent you estimated) x 140 (GRM you developed = $224,000 indicated value by the income approach

 

[CANative]

Looks like David W. gave you the answer. Multiply the 7 by 12 months. Or divide the yearly rent by 12 months.

Are you doing this for practice or in a real assignment?

 

[RebeccaF]

Thanks everyone! , I am still learning and I understand that the subject actual rent and market rent are different, our homework was to complete the operating statement and a rent survey and complete the income approach on the 1004. Sorry to be dumb, I just did not understand what it was asking for and how mathematically it made sense.. Thanks again SO MUCH