GRM (Gross Rent Multiplier) and Cash on Cash Return

Investors like to use the GRM as a fast method for identifying  a potential  cash-flowing investment property.

To figure your GRM, use your purchase price divided by the potential gross rents on an annual basis.

Many investors like to see a net of 8-20% cash on cash return on their investment. If you consider your initial investment (downpayment) then divide by your net cash flow (not gross – you want to use your cash flow after all your expenses.) This allows you  to decide if your investment will meet your cash on cash return requirement. It’s also where you decide if the risk is worthwhile for the return based on other factors.

Right now investors are not being compensated for the risks they are taking by keeping funds in banks or in the stock market. Historically, the real rate of return has been a lot higher on real terms. Don’t hold your breath waiting for the rates they pay you to rise. This is why you need to consider real estate that offers cash flow to build your portfolio and wealth.