top of page

What is Capitalization Rate & why should I care about it?

Capitalization Rate (Cap Rate), is the Rate of Return an investor wants to receive or that a subject property is producing. The value of any commercial property is based upon the Cap Rate that an investor is willing to pursue.


If the Cap Rate increases, the risk of the subject property also increases and, therefore, the value decreases.


An investor should be aware of the amount of risk (Cap Rate) that they are willing to take on prior to entering into a contract to purchase an investment property.



What is Gross Rent Multiplier (GRM) and how is it useful?

Gross Rent Multipler or GRM is used to estimate values of residential income properties. Finding the value of a subject property using GRM takes 2 steps:


Step 1: Find the sales price of a comparable property and divide by its Gross Monthly Rent. This will give you GRM. Generally speaking, 100 is the base GRM for a "good" investment.


Step 2: Apply the GRM to the subject property by multiplying by its Gross Monthly Rent. Again, an investor will need to weigh the risks and potential return prior to investing.

bottom of page