GRM vs Cap Rate
Gross rent multiplier and cap rate both tell you how much you are paying for a property's income. GRM is faster and rougher. Cap rate takes more work and is far more reliable. Most investors use both, in that order.
The two formulas side by side
- Gross rent multiplier = price / annual gross rent. Lower is cheaper.
- Cap rate = net operating income / price. Higher is cheaper.
Both put the price in relation to income, but they use different income. GRM uses gross rent, the top line, before vacancy and expenses. Cap rate uses net operating income, what is left after vacancy and operating expenses. That one difference explains when each is useful.
When GRM is enough
GRM needs only two numbers that are in every listing: the price and the rent. That makes it ideal for screening. If you are scrolling through fifty small multifamily listings, compute the GRM for each and set aside anything far above the local norm. The GRM calculator also shows what a property would be worth at your market's typical multiplier, which is a quick way to judge an asking price.
GRM also works reasonably well when comparing very similar properties, for example two duplexes on the same street of the same age where the tenants pay the same utilities. Their expenses are likely to be similar, so the gross numbers tell most of the story.
When you need cap rate
As soon as expenses differ, GRM can mislead you. Consider two buildings, each priced at $1,000,000 with $120,000 of gross rent. Both have a GRM of 8.33. In the first, tenants pay their own utilities and taxes are modest, so expenses are 38% of income. In the second, the owner pays heat and water and the property sits in a high-tax county, so expenses are 52%. At 95% occupancy, the first nets about $70,680 and the second about $54,720. Their cap rates are 7.07% and 5.47%. Same GRM, very different investments.
Cap rate catches that because it is built on NOI. Use it for any property you are seriously considering, and build the NOI yourself rather than relying on the listing. The cap rate calculator does both in one place, and our NOI guide explains which expenses to include.
Converting between GRM and cap rate
If you know a property's expense ratio and occupancy, you can move between the two. NOI = gross income x occupancy x (1 - expense ratio), so cap rate = occupancy x (1 - expense ratio) / GRM.
For example, a GRM of 8 with 95% occupancy and a 45% expense ratio gives 0.95 x 0.55 / 8 = 6.53%. This is useful when a broker quotes market GRMs and you want to compare them to cap rates from other sources, or the other way around.
What neither number tells you
Both GRM and cap rate ignore financing. They describe the property, not your deal. To see what your cash will earn once you have a mortgage, use the cash-on-cash return calculator, and to see whether a lender will approve the loan you want, use the DSCR calculator. Neither number captures appreciation, tax benefits, or how much work the property will take, so treat them as starting points rather than answers.
Calculators for this guide
Results are estimates for education only, not financial, tax or legal advice. Check numbers with your lender and advisors before you buy. Last reviewed 2026-10-12.