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Gross Rent Multiplier (GRM) in Phoenix, Arizona

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Gross Rent Multiplier

Gross Rent Multiplier for Apartment / Multifamily Loans

 

Using a Gross Rent Multiplier to estimate the value of your investment property in this market will only take a few minutes. Gross Rent Multiplier (GRM) by no means is as accurate as an appraisal but with no cost or time involved will help you compare the value of properties for sale that you are interested in quickly. GRM gives you an indication of value based on the rents the property has achieved. Thus, properties with higher rents will achieve a lower or better GRM in relationship to the sales price. The lower the GRM, the higher the cash flow based on the sales price and the better your investment. GRM also reflects the number of years it will take you to pay off the property using just the gross rents. To calculate GRM, take the purchase price and divide it by the gross annual rents with the property being 100% occupied.  

 

For example:  The purchase price is $1,000,000.  The annual gross rents are $120,000.  The GRM is 8.33. 

Purchase Price/Gross Rents = GRM

 

How to use GRM to check the value of a rental property

When you are searching for an “A” quality property 1 – 10 years old in this market for sale a reasonable GRM would be a 12 which is multiplied by the annual gross rents and this will give you a reasonable purchase price. Very high rent properties will be a 14 GRM.  If the property is 10 to 20 years old and has some deferred maintenance it will be a “B” property and a will have a 10 to 12 GRM.  For a “C” property that is over 25 years old in fair condition use an 8 10 CRM.

For example:  8 CRM X  $73,440 (annual Income) = $587,520 (Market Value)

 

How accurate is a value calculated by Gross Rent Multiplier?

This is a fair indication of value not an excellent one.  As mentioned, in this market, an “A” quality newer apartment complex in very good condition will have a much higher GRM than a 30 year old “C” quality property in fair condition. The lower the CRM, the higher return you are getting on your investment – but you will likely have to choose an older property with more deferred maintenance for it to have a lower CRM. 

 

Using Gross Rent Multiplier to determine value does not take into consideration vacancy or annual operating expenses. Another draw back is that it does not look at how well a property is managed or if it has higher or lower expenses than average for a property of its age and condition. A commercial property appraisal is the most accurate indication of value but can take 3 – 4 weeks and a great deal of money. This type of appraisal averages many comparable properties together to come up with a valuation based on sales comparables (Sales Comparison Approach) and Net Operating Income (Income Approach).

 

How to Determine GRM Accurately

Get a copy of the current rent roll for the subject property.  For any vacancies put in the rent that the units should receive. 
Take the monthly gross rents X 12 to get the annual gross rents
Divide the purchase price by the gross annual rents

 

Purchase Price/gross annual rents = GRM

 

Now do the same process with other properties that have sold or are for sale in this market. You can compare the GRM of those properties with the properties you are interested in. 

 

To find many commercial properties for sale you can go to: loopnet.com

 

To find the sales price and other info on properties that have sold go to: zillow.com

 

Or ask you real estate professional for comparable sales.

 

At Apartment Loan Store, we would be pleased to give you our opinion of the value of a property you are interested in purchasing and also pre-approve you for a loan. Call one of our friendly loan specialists at 503-376-7303

About the Phoenix, Arizona Real Estate Market in 2025

In the city of Phoenix, Arizona, $231,200 is the house value median. In the last year, there has been an increase of 7.3 percent in the value of homes in Phoenix. There has been a prediction made that in the following year, the value of homes will increase by 2.8 percent.

In Phoenix, $167 is the per square foot, list price median. The Metro Area of Phoenix-Mesa-Scottsdale has a lower per square foot list price median of $157.

$280,000 is the presently listed house price median in Phoenix, AZ. For houses that have been sold, $241,300 is the price median.

$1,400 is the cost of rent median in the city of Phoenix. The Metro Area of Phoenix-Mesa-Scottsdale has a higher cost of rent median, which is $1,495.

The foreclosure rate can have a big impact on the value of homes. The lower the foreclosure rate, the higher the value of real estate.

 If the foreclosure rate increases massively for a particular area, the value of homes will decrease significantly. If there is a low foreclosure rate for a particular area, the home value will be minimally affected by those foreclosures.

For every 10,000 houses in the city of Phoenix, 0.5 houses are foreclosed. The Phoenix-Mesa-Scottsdale Metro Area has the same foreclosure rate of 0.5 percent. The United States has a much higher foreclosure rate of 1.6.

There is a first step that occurs in the process of foreclosure. It is called mortgage delinquency. Mortgage delinquency is the condition of homeowner missing a mortgage payment.

Mortgage delinquencies are a serious financial matter. This is because when a homeowner has a mortgage delinquency, they are at the beginning stages of what can lead to foreclosure.

If they miss three more mortgage payments, the bank could very well start the process of foreclosure. Since mortgage delinquencies are a serious concern, credit scores can be greatly lowered from them especially if there are multiple mortgage delinquencies.

For Phoenix, AZ, 1.0 percent is the percentage of mortgage delinquencies. The USA has a higher mortgage delinquency rate of 1.6 percent.

Due to the recession of 2008, in the United States, the value of houses dropped more than 20%.

That recession had such a negative effect on the real estate economy, that a large number of homeowners are presently underwater regarding their mortgages.

Being underwater on a mortgage means that the owner of the home has a mortgage debt that exceeds the value of their house. 11.3% of homeowners in Phoenix are underwater regarding their mortgages. The Metro Area of Phoenix-Mesa-Scottsdale has a lower underwater rate of 10.6%.

Moving on to commercial real estate, there has been an industrial property sale of $48.5 million of Southwest Industrial Center in Phoenix. It is located at 7775 West Buckeye Road in Phoenix, AZ. The purchaser is CBRE Global Investors Acquisitions, LLC, which is based in Los Angeles, CA. The seller is Hines, of a global real estate company which is located in Houston, Texas.

The location of Southwest Industrial Center is superb. For the West, it is one of the most highly sought after and biggest industrial markets.

For those who become lease holders, there is an immediate advantage of having vacant space available now for further lease up. Stable in-place income is also another advantage.

Southwest Industrial Center has 684,420 square feet and it was built in 2015.

There is a clear height of 32 feet in Southwest Industrial Center. It is also a class A cross-dock distribution facility.

In 2011, the annual median household income in the city of Phoenix, Arizona was $43,960.

A good source to immerse yourself into learning about the Arizona multifamily market is Arizona Multihousing Association – http://www.azama.org/

To find out more about apartment real-estate in Phoenix, go to http://www.biggerpockets.com/

Apartment Loan Store is proud to serve the entire Greater Phoenix area:

  •  Apache Junction
  •  Avondale
  •  Buckeye
  •  Carefree
  •  Cave Creek
  •  Chandler
  •  El Mirage
  •  Fountain Hills
  •  Gilbert
  •  Glendale
  •  Goodyear
  •  Guadalupe
  •  Litchfield Park
  •  Mesa
  •  Paradise Valley
  •  Peoria
  •  Queen Creek
  •  San Tan Valley
  •  Scottsdale
  •  Sun City
  •  Sun City West
  •  Sun Lakes
  •  Surprise
  •  Tempe
  •  Tolleson
  •  Youngtown

 

 

 

 

 

 

 

 

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