How to use the gross rent multiplier calculator
- Enter the price of the property and its total monthly rent at full occupancy.
- Optionally enter a vacancy allowance to reduce the rent before the multiple is found.
- Add comparable properties with their sale price and monthly rent.
- Read the multiple, the median and average of the comparables, and the value your rent would indicate at their multiples.
Formula
yearly rent used = monthly rent x 12 x (1 - vacancy percent)
gross rent multiplier = price / yearly rent used
indicated value = comparable multiple x your yearly rent used
median of comparables = middle multiple when sorted
A lower multiple means a lower price for each dollar of rent. The multiple ignores expenses, taxes and loan terms, which is why it is only a quick screen.
A $300,000 property with three comparables
A property priced at $300,000 that rents for $2,000 a month brings in $24,000 a year, so the multiple is 300,000 / 24,000 = 12.50. Three comparables sold for $280,000 at $2,000 a month, $450,000 at $3,200 and $360,000 at $2,500, giving multiples of 11.67, 11.72 and 12.00.
The median comparable multiple is 11.72, which values your $24,000 of rent at $281,250. The average of 11.80 gives $283,083.33. Both are below the $300,000 price, so the property looks expensive next to those sales on this one measure. With a 5% vacancy allowance the same property has a multiple of 13.16.
What the multiple does and does not tell you
The multiple is easy to compute from a listing, which is its appeal. But two properties with the same multiple can have very different expenses, so their returns differ. Use it to sort a list of candidates, and then look at income after costs with the Cap Rate Calculator or the Rental Property Calculator.
The Rental Yield Calculator turns the same two numbers into a percentage, and the Debt Yield and Debt Constant Calculator looks at the loan side.
Choosing comparables
Use properties of the same type, in the same area and of similar size and condition, sold recently. Rents should be on the same basis, for example with or without utilities. A few good comparables beat many loose ones.
Assumptions and limits
- Rent is the total for the property at full occupancy, before the vacancy allowance you enter.
- Prices and rents of the comparables are on the same basis as your property.
- The multiple ignores expenses, taxes, financing and changes in rent.
- Comparables are not adjusted for size, condition or location.
- This is a rough screen, not an appraisal or investment advice.
Frequently asked questions
What is a good gross rent multiplier?
There is no universal good number. It depends on the market and property type, so compare with similar properties near you.
Why show both the median and the average?
A single odd comparable can pull the average away from the rest. The median is less affected, so seeing both helps you spot that.
How is the multiple different from rental yield?
They are inverses of each other: the yield is yearly rent over price, and the multiple is price over yearly rent.
Does the multiple include vacancy?
Only if you enter a vacancy allowance. By default it uses full-occupancy rent.