Free Tool — Appraisal
GRM & Cap Rate Calculator
Compute the gross rent multiplier and capitalization rate — the two income-approach calculations the real estate appraisal exam tests most.
Gross Rent Multiplier
Value a comparable: GRM × its annual rent = estimated value.
Capitalization Rate
Reverse: Value = NOI ÷ Cap Rate = $600,000.
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GRM vs. Cap Rate
The gross rent multiplier (GRM) is a quick screen: sale price divided by gross rental income. A comparable property's value is estimated as GRM × its rent. It ignores expenses, so it's a rough first cut.
The capitalization rate is the precise income-approach measure: net operating income (NOI) divided by value. Because NOI subtracts operating expenses (but not debt service or income tax), cap rate reflects a property's true earning power. Rearranged, value = NOI ÷ cap rate — the formula appraisers use to value income property.
The appraisal exam tests both: which to apply, how to compute each, and how to back into value from a market-derived rate.
Frequently Asked Questions
What's the difference between GRM and cap rate?
GRM uses gross rent and ignores expenses; cap rate uses net operating income (after operating expenses). Cap rate is the more accurate measure of a property's return.
How is NOI calculated?
NOI = effective gross income − operating expenses. It excludes mortgage payments (debt service) and income taxes, which is why two buyers can compute the same NOI on the same building.
What is a good cap rate?
It varies by market, property type, and risk — there's no universal number. The exam tests your ability to compute and apply the rate, not to judge whether a specific rate is "good."
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