seven years.
GRM: fair market value OR asking price / gross annual income = time to pay off property with rental income Of course, it’s not actually this simple. This formula neglects all the other costs that could come up, including general maintenance as well as both expected and unexpected repairs. So why use GRM? Ultimately, it’s most helpful when you’re trying to decide on which property to buy. You can look at the GRM across all the properties you’re looking at (as well as others in the market). The cap rate differs from the GRM because it looks at Net Operating Income (NOI) in relation to the current market value. It looks at general operational expenses and vacancy rates, meaning it’s a more accurate way to see if a rental property’s viable. To figure out the cap rate, you divide the NOI by the current market value. You then multiply that by 100 to get a percentage.
Cap Rate: (net operating income / market value) x 100
Of course, you’ll need to do your research to determine market value and operating income. Investors often analyze cap rates of similar properties to figure out what rate they need. Sometimes, investors have the cap rate already. In that case, they can use it to figure out the market value of the property:
Market Value (Using Cap Rate) net operating income / cap rate = market value
80
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