Gross Rent Multiplier Calculator
Answers the Question
How quickly could we earn our money back from rental property?
Calculator for Gross Rent Multiplier
What Is the Gross Rent Multiplier?
The gross rent multiplier is a figure which can be used to compare the relative value of properties. The lower the figure, all things being equal, the more quickly a property owner will be able to reach break-even.
Why Is it Important?
- It can be incredibly difficult to determine which of several rental properties makes the most economic sense to purchase. The gross rent multiplier is a very simple formula that is easy to understand and apply. It allows users to represent the value of each property as a single number which can be compared to that of any other property.
Formula(s) to Calculate Gross Rent Multiplier
- GROSS RENT MULTIPLIER = PURCHASE PRICE / (MONTHLY RENT * 12)
- Ignoring possible improvements to the land. A property with the ability to support additional floors or buildings would be worth far more than the gross rent multiplier would suggest.
- Ignoring the difficulty in renting. In truth, many landlords will find it difficult to fill vacancies. Some apartments will be more likely to become vacant than others for long periods - even if their gross rent multipliers are equivalent.
- Ignoring the cost of upkeep. Old buildings built with low quality wood, for instance, will likely require far greater maintenance than buildings built with brick or reinforced concrete.
- Ignoring taxes. Depending on the region, taxes (and the threat of higher taxes in the future) may significantly impair the value of a property.
- Ignoring the effects of cash flow. A building that is less profitable may require a smaller investment than one that is more profitable but requires a larger down payment.
- Estimating the monthly rent of the unit or units upon purchase. In cases in which there are no current renters or existing renters are not paying market rates, the gross rent multiplier can provide very misleading values.