Final answer:
The gross rent multiplier (GRM) is a real estate valuation metric that reflects the ratio of a property's sale price to its gross rental income. It does not account for operating expenses, only providing a quick initial value assessment.
Step-by-step explanation:
Understanding the Gross Rent Multiplier
The gross rent multiplier (GRM) is a real estate valuation metric used to assess the value of an income-generating property by comparing its price to its gross rental income. The GRM is calculated by dividing the property's sale price by its annual gross rents. To clarify, the GRM is based on d. the relationship of the sales prices to the monthly rental income.
For example, if a property is sold for $300,000 and its annual gross rents are $30,000, the GRM would be 10 (300,000 / 30,000). This means it would take approximately 10 years for the gross rental income to pay for the property's sales price. GRM gives a quick initial assessment but does not account for operating expenses and vacancies, which are important considerations for a comprehensive investment analysis.
Concerning the information provided about multipliers in the economy, it's important to differentiate that the economic multiplier discussed in those examples refers to the concept in macroeconomics of how spending can multiply through an economy, which is different from the GRM in real estate.