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SMART Residential Real Estate Investing eGuide© Home

How To

Quick Calcs

Gross Rent Multiplier (GRM)
The Gross Rent Multiplier is a quick and easy way to measure the projected profitability of an income property that you are looking at. It is calculated like this:

GRM = Price / Annual Rents

For example: You are looking at a duplex in Long Beach that is asking $500,000. The rents are listed as $1,400 per month for each unit, for a combined annual rent of $33,600. Dividing the Asking Price by the Annual Rents gives a GRM of 14.9.

The general rule of thumb is: the lower the GRM, the better it is for the property buyer. Further, we have tracked the relationship between GRM and Cash Flow. We have found that generally a GRM under 15.0 has break-even or positive cash flow.

So if you want positive cash flow, our advice is to look for residential income properties with a GRM under 15.0.

Double Your Money
Our SMART Residential Income Property Search Engine© shows a lot of information that the smart real estate investor needs to make better decisions. One of these is: What's the return on your investment?

We calculate out over a default 10 year horizon the following accumulations of equity:
  1. Cash Flow
  2. Appreciation
  3. Mortgage Payback (aka Principle Reduction)
Here the quick calculation:
* Long term return on investment (ROI) of 200% means you are doubling your money in that period of time.

Our calculations show that almost half of the available income properties in the areas we cover (Los Angeles and Orange Counties) have 10 year gains that allow you to double your money in that period of time. A lot of opportunity out there!

Another quick calculation tip:
* Any cash flow above $0 (assuming 25% down, current interest rates and other default factors we use) allows you to double your money in 10 years. So start with looking for positive cash flow properties. You can double your money!

Annual Rate
And what's the effective annual rate of doubling your money?

Final quick calculation tip:
* It's known as the 7/10 rule:
  1. At 7% annual increase, you double your money is about 10 years
  2. At 10% annual increase, you double your money in about 7 years

So doubling your money in 10 years is approximately a 7% annual ROI. Sure beats most other investments!

Let Us Know How We Can Help You

Feel free to contact us to get started on your path to real estate investing success.

We'll be glad to answer any questions you may have about residential income properties,

and guide you every step of the way:

(562) 208-9818

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