Example

You find a pontential investment with a purchase price of $874,000. You estimate the potential rental income the first year to be $139,251. What's the gross rent multiplier?

It's 6.3.

Widely Used

Unsophisticated investors like this ratio, because it's easy to calculate. It is the purchase price divided by the potential rental income for the first year. This indicator does not take into account operating expense ratios which often fluctuate, and it is based only on the first year of operation.

Formula:   Purchase Price ÷ Potential Rental Income