# what are CAP rates or Gross Rent Multipliers for small income properties with a sales price of 2.5 million

Asked by Anna27, Los Angeles, CA Thu Nov 15, 2007

in the marina del rey area

## Help the community by answering this question:

4
Net Operating Income (NOI), dividing it by the sales price, is the cap rate.

Example:
Say the property has an NOI of \$250000, and the price is \$2500000

\$250,000/ \$2,500,000 = 10% cap rate

Gross Rent Multipliers
Monthly rents \$9,000 multiplied 12 = \$108,000
\$108,000/\$2,500,000 = 23 gross rent multiplier

With NOI and GRM is is more.

Gail Mercedes Cole
EXP Realty
This is simple. at the end of the year, you have an amount of revenue from the property. Let's say it is \$100,000. This is what your accountant would arrive at, and includes late fees, laundry income, lost rent from an eviction, etc. It is what your accoutant would put as "revenue" on your tax return. You simply take this figure and multiply it by a GRM to get the value. Let's assume a GRM of 6. In this example, 6 x 100,000 is \$600,000. This is what the property is worth using the GRM method.
Typically if you're dealing with a small residential income property (2-4 units), you would use the Gross Rent Multiplier (GRM) to determine overall value of a property based on gross market rents of similar units in the area. Generally in Los Angeles city, becasue of rent control restrictions, or high percentages of owner occupied units, the GRM method is given secondary weight to the sales comparison approach in determining market value, even for 2-4 unit properties.
Put simply, the cap rate is the net operating income divided by the sales price. It is not possible to calculate the cap without all the information.
Dorene Slavitz
Residential & Commercial Realty