How Income Property is Valued
The previous editorial mentioned GRM and Cap rates. Here’s the explanation: the Gross Rent Multiplier is a ratio between the price paid for a building and the income it generates. GRMs are most commonly used for smaller income properties. Divide the Sales Price by the Gross Income to get the GRM. Since June 1, 2014 six (6) x 4 unit buildings sold in NOPA and the Haight and the GRM ranged from 14-25. The lower the GRM, the better the investment.
Capitalization rates are a percentage and are mostly used for larger income producing properties but this figure is still helpful for smaller buildings because it measures the rate of return on the investment. It is calculated by dividing the Net Operating Income by the Sales Price. The higher the Cap Rate, the better the investment.