What is CAP rate and GRM?
CAP Rate and GRM are both measurements for the value of a rental investment. CAP Rate should be above six or seven percent.
If the CAP rate is the same or less than the savings interest rate at a bank, pick a different property, or put your money in the bank…. it has less risk.
The GRM should be ideally be below 100.
Now here is an example of these calculations. We will use a sample property priced at $100,000, Gross Scheduled Income of $10,000, Other Income of $1,000, a 10% vacancy allowance, and $5,000 operating expenses.
Click here to view the full investment report for this example.
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Thank you very much for the great information and the explanation. It was very helpful. If you could please explain or add why the GRM should be below 100. What are the risk factors of someone purchasing a property that has GRM 10, vs other property that has GRM of 95.
Comment by Andre — July 6, 2009 @ 12:58 pmThank you for your input, and have a nice day.
Andre,
Comment by Tony — July 7, 2009 @ 3:10 amThank-you for writing. I have more information for you here: http://www.tonymassey.com/why-is-a-lower-grm-better