WHAT IS THE GROSS RENT MULTIPLIER (GRM) IN REAL ESTATE?
If you’re a real estate investor or just in the market to buy a home, then you’ve likely come across the term “gross rent multiplier” or GRM. But what is it, exactly? And what does it mean for you? When you’re buying a property, one of the most important things to understand is your potential return on investment or ROI. This is calculated by multiplying the annual rent by the gross rent multiplier (GRM). At MY SMART COUSIN, we want to help you make your first step in real estate investing as straightforward and painless as possible. As seasoned Real Estate Investors and Investment Coach, we lead aspiring homeowners and investors, and especially Black and Brown folks and women, through the process of implementing real estate investment goals. We develop custom-designed strategies and roadmaps that are tailored to your particular situation and interests. And if you’d like to buy a house for the price of a car, our personal favorite way to invest, we’ve got you covered there too. In this blog post, we’ll break down everything you need to know about GRM and explain how it can help you make better investment decisions. Stay tuned! WHAT IS THE GROSS RENT MULTIPLIER? The gross rent multiplier, or GRM, is a tool that investors use to estimate the potential return on investment for a rental property. To calculate the GRM, you simply take the purchase price of the property and divide it by the annual gross rent. For example, if you purchase a property for $100,000 and the annual rent is $10,000, the GRM would be 10. Or said another way, if you purchase a house for $100,000, then it would take you ten years to reach breakeven on a rent revenue basis. However, it’s important to remember that the GRM is just an estimate and doesn’t take into account other factors that could affect your actual return, such as vacancy rates, competing for rental options for tenants, and market conditions. So while the GRM can be a helpful tool in your investment decision-making process, it shouldn’t be used as the sole deciding factor. HOW IS THE GRM USED IN REAL ESTATE INVESTING AND ANALYSIS? The gross rent multiplier helps investors quickly get their arms around the potential value of a property of an income-producing property. Generally speaking, a lower GRM indicates a better deal, as it means that you are paying less for each dollar of rental income. Or said differently, it is taking you fewer years to recover your investment cost through rent revenues. In addition to being used as a valuation tool, the GRM can be used to compare properties against one another. For instance, if one property has a GRM of 8 and another has a GRM of 12, then the first property is considered to be a better investment because it has a shorter breakeven period and requires fewer investment dollars per dollar of rent revenue. While the GRM is not a perfect measure, it is a useful tool for taking a quick snapshot of the value of an income-producing property. WHAT FACTORS INFLUENCE THE GRM FOR A PARTICULAR PROPERTY OR MARKET AREA? There are a variety of factors that can influence the GRM for a particular property or market area. · One of the most important factors is the current state of the housing market. If there is high demand for housing, the price of entry for an investment property will generally be higher, leading to a higher GRM. · Another important factor is the location of the property. Properties in desirable areas will often sell for a premium, resulting in a higher GRM, which may outweigh the value of the higher rental income. · Additionally, the size and condition of the property can impact the GRM. Larger properties or those in better condition will often sell for more, resulting in a higher GRM. · Ultimately, the GRM is impacted by a number of different factors, all of which should be considered when evaluating a potential property purchase. WHAT ARE SOME OF THE PROS AND CONS OF USING THE GRM IN REAL ESTATE INVESTING DECISIONS? The GRM is a powerful tool that aids in making real estate investment decisions. THE PROS · The GRM can be used to quickly and easily compare different properties. · It can help you evaluate whether a property is a good investment, · It can provide valuable insights into the market. THE CONS · The GRM does not take into account all of the factors that affect real estate values. It is important to remember that the GRM is just one tool, and the number should not be followed blindly as a rubber stamp of whether the property is a good or bad investment. YOU CAN ALSO READ: CAP RATE EXPLAINED AS WE BEGIN EYING 2023, AND WHY IT MATTERS WITH RENTAL PROPERTIES FOLLOW US: @MYSMARTCOUSIN
A BEGINNERS’ GUIDE TO BUY AND HOLD REAL ESTATE
Buying a home is a huge decision – one that should not be taken lightly. For first-time home buyers, the process may seem daunting. But with careful planning and research, it can be an exciting and rewarding endeavor, particularly if you buy a house for the price of a car. Whether you’re a newbie or an expert, MY SMART COUSIN can help you achieve your real estate investment goals. Our focus is positioning Black and Brown folks and women to purchase their investment property or home sweet home quickly, knowledgeably, and cheaply. We use our skills as experienced and trusted Real Estate Investment coach with people just like you who want the opportunity to achieve what everyone deserves – ownership of their own home. Even in today’s red-hot market, there continue to be lots of potential opportunities. If you’re looking for something that has long-term stability and passive income potential, buy and hold real estate makes a great choice. In this guide, we’ll go over everything you need to know about buy and hold investing – from what it is and how to manage the risks, to how you can get started. Whether you’re a beginner or an experienced investor, read on for more information! WHAT IS BUY-AND-HOLD REAL ESTATE INVESTING? Buy and hold real estate investing is a long-term investment strategy in which investors purchase property, intending to hold it for an extended period to generate long-term gains. This strategy is different from flipping, in which investors aim to quickly sell properties for a profit. While buy and hold investors seek to generate ongoing cash flow from their properties through renting or leasing, they also train an eye on the potential of the property. This type of investing can be a good way to build wealth over time, but it requires patience and a willingness to ride out the ups and downs of market economic cycles. For those who are steadfast and disciplined, a buy and hold path can yield steady monthly income coupled with sustained equity growth. WHY SHOULD REAL ESTATE INVESTORS CONSIDER INCLUDING BUY-AND-HOLD REAL ESTATE IN THEIR PORTFOLIO? Real estate has long been considered a solid investment and for good reason. It can yield impressive results when done correctly, providing both profits and stability for your portfolio. And while there are numerous strategies that real estate investors can use to achieve success, one that has stood the test of time is buying a property, renovating it, renting or leasing it, and holding it for 10-15 years or longer, enabling the property to appreciate over time. With buy and hold investing, you purchase a property based on long-term factors such as the economic drivers of the region. Job growth and road infrastructure projects, for instance, are good weathervanes to gauge when comparing communities and searching for investments. By holding onto a property for an extended period, you stand to see a significant return on your investment. According to studies, properties held for more than 10 years have an average return on investment (ROI) of 12%. That’s more than double the average ROI of stocks! As such, long-term ownership of real estate can be a great component of your investment strategy. So how exactly do you find a property to invest in, and what are the key factors to look for? REMEMBER THE OLD SAYING— LOCATION, LOCATION, LOCATION · Location is a key factor to prioritize when searching for properties to invest in. The closer a property is to a high-demand area such as an urban center or up-and-coming neighborhood, the pricier it will be, and the larger the potential payoff over the long run. · But location shouldn’t be the only factor you consider. The value of the property must also be looked at to ensure you’re getting your money’s worth. It’s important to find a property that is undervalued so that there’s room for profit when selling it in the future. · Furthermore, it is essential to have a clear purpose for investing in a particular property. Are you looking to rent it out through Airbnb or under a long-term lease? Are you planning on managing the property yourself or using a property manager? Once you define your investment strategy, you can quickly qualify and disqualify properties based on whether they meet your objectives. There are many profitable opportunities when it comes to investing in real estate. However, it is important to do your research and exercise caution to maximize your chances of success. WHAT ARE THE STEPS INVOLVED IN BUYING A PROPERTY, FROM FINDING A LENDER TO COMPLETING THE SALE? If you’re thinking of buying a property, there are several steps you’ll need to take to ensure the process goes smoothly. · First, you’ll need to find the right property. This means considering factors such as location, size, and price. · After you’ve found a suitable property, your next step is arranging financing. This can be done through a mortgage broker, conventional bank or hard money lender. · Once your finances are in order, you’ll need to upgrade the property. This may involve hiring contractors to perform renovations, make repairs and improve the curb appeal of the home so it is move-in ready. · Once the property is in good condition, you’ll need to find tenants and manage the property effectively. If you will use a property manager as part of your strategy, then you will need to interview, negotiate with and select a property manager. · Finally, when it comes time to sell, you’ll need to ensure that you make a profit on the sale. By following these steps, you can minimize your risks and maximize your chances of success when buying a property. SUMMING IT UP So, what is buy and hold real estate? In a nutshell, it’s purchasing a property with the intent of holding onto it for the long term. It’s one of the most common ways to invest in real estate