What formula is used to calculate GRM?

The Gross Rent Multiplier (GRM) is a simple method used to evaluate the potential value of an income-generating property. It is calculated using the formula: Selling Price (or Value) divided by the Potential Gross Monthly Income. By taking this approach, investors can quickly assess the relationship between the property’s price and its income potential, aiding in investment decisions.

This method provides a straightforward numerical indicator that can be used alongside other metrics to gauge whether a property is priced appropriately in relation to the income it generates. When investors understand the GRM, they can compare properties easily and determine which investments might yield better returns relative to their costs.

The other options do not accurately reflect the components involved in calculating the GRM. For example, the first option suggests multiplying the value by the effective gross income, which does not align with the GRM's ratio-based assessment. The third option focuses on the difference between market value and expenses, which is unrelated to the calculation of GRM. Lastly, the fourth option outlines a net income-to-value ratio, which measures different financial performance parameters rather than the direct income potential per value used in GRM calculations.