ImmoMulti — a direct buyer of plexes and multi-unit residential properties on the North Shore — uses several ratios to read an income property. Two of them look alike but do not say the same thing: the GRM (Gross Rent Multiplier) and the NRM (Net Rent Multiplier). The first compares the price to gross income, the second to net operating income. Understanding GRM vs NRM means knowing which to use at each stage: the GRM to screen quickly, the NRM (and its cousin the cap rate) to decide. This guide explains both formulas, their link to the cap rate, a comparison table, and a consistent worked example.
In short: 4 things to remember
- GRM = price ÷ gross income. Fast, but blind to expenses.
- NRM = price ÷ NOI. More faithful, because it factors in operating expenses.
- NRM = 1 ÷ cap rate. The NRM expresses in years what the cap rate expresses as a percentage.
- Screen with the GRM, decide with the NRM/cap rate — then always validate with the real numbers.
GRM and NRM: two multipliers, two levels of reading
The GRM and the NRM both start from the price, but divide it by different income figures. The GRM uses gross income (before expenses); the NRM uses net operating income (after expenses). The GRM looks at the top of the income statement, the NRM at the bottom — that is what sets them apart.
To value an income property using the income approach, two numbers are the starting point:
- Gross income: the sum of annual rents plus ancillary income (parking, laundry, storage), before any expense.
- Net operating income (NOI): gross income minus operating expenses (taxes, insurance, energy, maintenance, management, vacancy), excluding the mortgage.
The GRM is built on the first number, the NRM on the second. That is the whole difference: two properties at the same price with the same gross income will show the same GRM, even if one spends 30% of its income and the other 45%. Their NRM, however, will be very different — and it is the NRM that tells the truth about the return.
The GRM (Gross Rent Multiplier): fast but blind to expenses
The GRM = purchase price ÷ annual gross income. A property at $700,000 generating $60,000 in gross income has a GRM of 11.7. The lower the GRM, the faster the property is "paid off" by its rents. It is a quick screening filter, but it completely ignores expenses.
The Gross Rent Multiplier represents the number of years of gross rent needed to equal the price paid. On the North Shore, typical GRMs often fall between 9 and 14 depending on the city, size, and condition of the property. Its great advantage: speed. From a listing, you only need the price and gross income to get it — two figures almost always available. It is the ideal ratio to rule out in seconds a listing that is clearly overpriced for its rents.
Its weakness is the flip side of its strength: because it ignores expenses, it says nothing about the true return. A property whose owner pays for heating, or with heavy taxes, will show a flattering GRM but a disappointing net return. The GRM should therefore never be used to decide: it is for screening.
The NRM (Net Rent Multiplier): more faithful because it sees expenses
The NRM = purchase price ÷ net operating income (NOI). On a property at $700,000 with an NOI of $36,000, the NRM is 19.4. Because it starts from income after expenses, it reflects the true return better than the GRM. It is the mathematical inverse of the cap rate.
The Net Rent Multiplier corrects the GRM's main flaw: it accounts for expenses. Because it starts from NOI, it expresses the number of years of net income needed to equal the price. Two properties with the same GRM but different expense structures will show distinct NRMs — and it is the NRM, the higher one, that flags the less profitable property.
The price of this fidelity is data: you must know the real expenses to calculate an honest NOI. Sellers sometimes present optimistic or incomplete expenses (forgotten capital reserve, ignored vacancy). An NRM calculated on an inflated NOI is as misleading as a nice GRM. Rigour on the inputs is therefore essential.
The link to the cap rate: the NRM is its inverse
The cap rate (capitalization rate) = NOI ÷ price, as a percentage. The NRM = price ÷ NOI, in years. One is the inverse of the other: a 5% cap rate equals an NRM of 20 (1 ÷ 0.05), and an NRM of 19.4 equals a cap rate of about 5.1%. They say the same thing differently.
The cap rate and the NRM rest on the same two numbers — the price and the NOI — but relate them in reverse order. The cap rate, as a percentage, reads like a return: "how much the property nets per dollar of price." The NRM, in years, reads like a duration: "how many years of net income to equal the price." Choosing one or the other is mostly a matter of preference: many investors think in cap rates, but the NRM speaks more intuitively to those who think in "multiples."
This symmetry explains why the GRM has no truly useful percentage equivalent: because it ignores expenses, its "inverse" measures no net return. Only the NRM, anchored on NOI, converts cleanly into a cap rate.
Comparison table: GRM, NRM, and cap rate
Here are the three ratios side by side: formula, what each measures, its strength, its limitation, and when to use it. Keep this table handy the next time you analyze a listing.
| Ratio | Formula | What it measures | Strength | Limitation | When to use it |
|---|---|---|---|---|---|
| GRM (gross rent) |
Price ÷ gross income | Years of gross rent to equal the price | Ultra-fast; needs only price and gross income | Completely ignores expenses | Initial screening of listings |
| NRM (net rent) |
Price ÷ NOI | Years of net income to equal the price | Faithful: accounts for expenses | Requires a reliable NOI (i.e. the real expenses) | Decision and serious comparison |
| Cap rate | NOI ÷ price × 100 | Net return as a % of price | Market standard; comparable across properties | Also requires a reliable NOI; sensitive to rates | Decision, value, and market comparison |
Reading the table, the complementarity is obvious: the GRM is the only one of the three that can be calculated without knowing the expenses, which makes it the screening tool par excellence. The NRM and the cap rate, on the other hand, share the same foundation (the NOI) and tell the same story — one in years, the other as a percentage.
A full worked example: the same property from three angles
Property at $700,000, $60,000 in gross income, 40% expenses ($24,000), hence an NOI of $36,000. GRM = 11.7 ($700,000 ÷ $60,000). NRM = 19.4 ($700,000 ÷ $36,000). Cap rate = 5.1% ($36,000 ÷ $700,000). The GRM looks fine, but the NRM and cap rate reveal a modest net return, weighed down by expenses.
Take a triplex listed at $700,000, generating $60,000 in annual gross income, with an expense ratio of 40% (i.e. $24,000 in operating expenses). The NOI is therefore $60,000 − $24,000 = $36,000. Here are the three ratios.
| Step | Calculation | Result |
|---|---|---|
| Purchase price | — | $700,000 |
| Annual gross income | — | $60,000 |
| − Operating expenses (40%) | $60,000 × 40% | − $24,000 |
| Net operating income (NOI) | $60,000 − $24,000 | $36,000 |
| GRM | $700,000 ÷ $60,000 | ≈ 11.7 |
| NRM | $700,000 ÷ $36,000 | ≈ 19.4 |
| Cap rate | $36,000 ÷ $700,000 × 100 | ≈ 5.1% |
Reading: the GRM of 11.7 looks reasonable for the North Shore and might suggest a good deal. But as soon as we move to net figures, the picture becomes more nuanced: the NRM of 19.4 and the cap rate of 5.1% reveal a modest net return, weighed down by a 40% expense ratio. Had the same property spent only 30% (NOI of $42,000), the GRM would have stayed identical at 11.7, but the NRM would have dropped to 16.7 and the cap rate would have risen to 6.0% — a noticeably more profitable property, for an unchanged GRM. That is exactly why you never decide on the GRM alone.
The right method: screen with the GRM, decide with the NRM/cap rate
The efficient approach has two steps. First, use the GRM to quickly rule out listings overpriced for their gross income. Then, on the retained properties, calculate the NRM and cap rate from the real expenses to judge the true return and decide. The GRM saves time; the NRM and cap rate protect the decision.
In practice, faced with a list of listings, you start with the GRM because it needs only two figures and lets you effortlessly eliminate properties out of line with the market. The survivors then move to the serious step: reconstructing an honest NOI (real lease rents, normalized expenses, vacancy and capital reserve included), then calculating the NRM and the cap rate. That is where the decision is made.
To go further, our guide to reading a property's cap rate and GRM details the mechanics of return, and the plex value estimator translates an NOI and a market cap rate into an estimated value. If you are weighing several approaches, our comparison of plex valuation methods places the GRM and NRM among the other ways to estimate a property.
The principle to remember
The GRM and the NRM are not opposites: they take turns. The GRM is a quick filter that ignores expenses; the NRM (and the cap rate, its percentage equivalent) is a faithful measure that includes them. Screen fast, decide right — then, always, validate with the property's real numbers.
These ratios remain indicators: they guide judgment, they do not replace it. Before any offer, every figure — lease rents, real expenses, capital reserve, vacancy — deserves to be validated, ideally with a chartered appraiser, an accountant, or a mortgage broker depending on the context. The goal of this guide is to make the mechanics of the GRM and NRM legible, so you can read a listing and decide quickly, then confirm with confidence with the appropriate professionals.
