Which statement best describes what GRM measures?

Which statement best describes what GRM measures?

• A. The number of years of gross rent required to equal the purchase price
• B. The ratio of NOI to purchase price
• C. The debt service coverage ratio
• D. The capitalization rate

Answer: (A)

GRM measures how many years of gross rent it would take to equal the property's purchase price. It’s calculated by dividing the purchase price by the annual gross rent. This makes GRM a quick, rough gauge of price relative to rental income, without accounting for expenses, financing, or net income. For example, if a property costs 500,000 and each year it grosses 60,000 in rent, the GRM is 500,000 / 60,000 ≈ 8.3 years. The other metrics described in the choices use net operating income, debt service, or both, so they reflect different relationships (income after expenses or financing) rather than just gross rent, which is why they’re not GRM.

GRM measures how many years of gross rent it would take to equal the property's purchase price. It’s calculated by dividing the purchase price by the annual gross rent. This makes GRM a quick, rough gauge of price relative to rental income, without accounting for expenses, financing, or net income.

For example, if a property costs 500,000 and each year it grosses 60,000 in rent, the GRM is 500,000 / 60,000 ≈ 8.3 years. The other metrics described in the choices use net operating income, debt service, or both, so they reflect different relationships (income after expenses or financing) rather than just gross rent, which is why they’re not GRM.