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Dr Ravi Chandra Bellam Managing Director At Riva Rocks -article - Real Estate Investor Should Be Awa

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Dr. Ravi Chandra Bellam Managing Director at Riva Rocks -Article - Real Estate Investor should be aware Of the Gross Rent Multiplier

Dr. Bellam Ravi Chandra shares an article about the gross rent multiplier to real estate investors in India. Ravi Chandra Bellam gives a detailed explanation as follows.
Savvy real estate investors don’t rely on just one ratio or number to evaluate properties.
One of the simpler ratios to calculate for potential rental investments is the gross rent multiplier. In itself, it’s not enough to greenlight a property as a good investment, but it’s so fast and easy to calculate that you can do it in a few seconds. Which, in turn, can help you decide if the property is worth a closer look.
Here Bellam Ravi Chandra says that a real estate investor needs to know about gross rent multipliers.
What Is a Property’s Gross Rent Multiplier?

Quite simply, the gross rent multiplier is a property’s price divided by its gross annual rents.
Put another way, the gross rent multiplier tells you how many years it would take for a property’s gross rents to pay for itself.
Keep in mind that gross annual rents are exactly that: the gross number, not including any expenses. That leaves the gross rent multiplier (GRM) a rather crude ratio since property expenses vary wildly from market to market and from property to property.
So, to get understand easily Bellam Ravichandra BVL gives Example Numbers
Imagine Gina is considering a property priced at $180,000. The monthly rent is $1,500, which means the annual gross rents are $18,000.
Gina could find her GRM by following this equation:

$180,000 purchase price / $18,000 annual rental income = 10 GRM
In a perfect world with no expenses, it would take ten years for the rents to pay for the property in this hypothetical example.
At the risk of stating the obvious, a lower number is better when it comes to GRM.
Easy enough, right?
Note that if Gina negotiates a better deal and buys the property for $165,000, the GRM changes to 9.17 ($165,000/$18,000 = 9.17). Alternatively, say Gina pays the full $180,000 but forecasts that she can raise rents to $1,600/month with a few minor cosmetic tweaks. That changes the math as well: her gross annual rents would then change to $19,200, so her GRM changes to 9.38 ($180,000/$19,200 = 9.38).
Those are the only two numbers that can change gross rent multiplier: the property price and the collectible rent.
Why Calculate GRM?
You can take note of the answer given by BVL Bellam Ravi Chandra to this question.
As a ratio of a property’s rent to its price, the Gross Rent Multiplier it’s a loose indication of income yield. In theoretically, the better the lower in the ratio will be the better in the investment.
Ever heard of the “2% Rule” or the “1% Rule” in real estate investing? These rules of thumb compare the property’s monthly rent as a percentage of its purchase price. Investors following these rules look for properties that rent for at least 2% (or 1%) of the purchase price.
Gross rent multiplier is simply another way of measuring the same relationship between rent and price.
Using GRM to Screen Cities & Neighbourhoods – As explained by Dr Ravi Chandra Bellam:
I think of gross rent multiplier as a “screener metric.” If I’m browsing through dozens of properties for sale, I can calculate the GRM for each property in just a few seconds. When the GRM is outrageously high, I can dismiss that property without devoting another second to it.
Similarly, as explained by Bellam Ravi Chandra as above you can use GRM to evaluate the neighbourhood and even entire cities on their price/rent ratio. For example, imagine you live in San Francisco, where the median GRM is an atrocious 26.06 according to Zillow. (In case you’re curious, the Zillow Home Value Index is $1,359,800 at the time of this writing, and the Zillow Rent Index is $4,348. Not pretty for investors.)
So, you set out to find a city with a more reasonable GRM and settle on Indianapolis. It boasts an affordable average home price of $166,800 and an average rent of $1,238, putting its GRM at 11.28.
From there, you can zoom in to the neighborhood level and compare gross rent multipliers and cap rates there.

Follow this long-distance real estate investor’s survival guide as explained by Dr. Ravichandra Bellam Managing Director and if you plan on investing from afar, and consider a platform like Roof stock to make it easier.

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