GRMs have dropped an easy three multiples, if not four, since 2009. This could be a million dollar difference on certain properties. It’s giving investors a better return.
Burlingame, CA (Vocus/PRWEB) April 01, 2011
When evaluating potential investment properties, buyers use a metric known as the Gross Rent Multiplier, more commonly discussed as the GRM. The GRM is a number derived from the amount of rent a property produces annually divided by the asking price of the property. San Bruno Real Estate Agent Wayne Gomes explains what different GRMs mean to investors, and says that the current downward trend in GRMs throughout the Bay Area makes now a good time to invest in property.
For example, if an investment property or apartment building is producing $150,000 per year in rent and the GRM is 12 in that neighborhood, the simple value of the property would be approximately $1,800,000 [150,000 x 12 = 1,800,000]. If that same income was in an area that commanded a higher GRM, such as 15, then the property would be worth $2,250,000 [150,000 x 15 = 2,250,000]. If the GRM was 9.5, the value of the property would drop down to $1,425,000 [150,000 x 9.5 = 1,425,000]. Which one is the best investment? It depends.
Gomes explains that properties in upscale areas have a high GRM, which means that they will generally attract better tenants, but will also require a bigger down payment and produce a slower cash flow rate. Properties with a low GRM may have less reliable tenants and need more direct management, but they require a smaller down payment and produce a faster cash flow rate. Investors need to weigh these factors when deciding which property is right for them.
Gomes notes that GRMs are currently trending downward throughout the Bay Area. An area that commanded a GRM of 15 a few years ago likely has a GRM of 12 right now. “GRMs have dropped an easy three multiples, if not four, since 2009,” he explains. “This could be a million dollar difference on certain properties. It’s giving investors a better return.”
GRMs are indicating that investors have the opportunity to get a more desireable property for a lower down payment in the current market.
For more information about GRMs and current market conditions, contact Wayne Gomes - Broker Associate at Coldwell Banker at 650-558-4318.
To learn more about Wayne, visit his website at waynegomes.com or connect on Facebook at http://www.facebook.com/waynegomes2.
About San Bruno Real Estate Agent Wayne Gomes
With over thirty years of experience under his belt, Wayne Gomes has learned the ins and outs of real estate after successfully selling homes, condos, apartment buildings and commercial real estate which include retail and industrial properties since 1978. Located in the heart of Burlingame, Wayne helps people buy and sell real estate in San Bruno, Millbrae, and all other Peninsula communities ranging from San Francisco to Redwood City.