Earlier this year I was contacted by someone who was considering a sale of La Crescenta units.  Assessing the value of income property is different than determining which price a single family residence will likely sell.  

A critical factor of determining the value of multi-family real estate is the income it brings.  A starting point is the gross rent multiplier (GRM) which is a simple calculation: Selling price aka Market Value, divided by annual gross income = Gross Rent Multiplier

So when reviewing comps: if a property sold for $900,000 and the annual gross rents were $58,000 the GRM is 15.5%. 

Next, I analyze all of the GRM for the active, sold, pending and expired listings.  Let’s assume that the GRM for the sold comparables averaged around 15% - then I would take the annual gross rents and multiply by the average GRM, which will provide an estimate of value.  But in a declining market, I would also closely examine active listings and expired listings.

The GRM is only a starting point; there are other factors to consider, such as location, condition, and whether or not the rents are maximized.  How large is the lot? Is there upside potential?  As you can see the GRM is just a starting point when determining the value of residential income property.

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