Procedures Key Formulas (Income Approach)

Question 1

GRM: Gross Rent Multiplier (GRM) Formula?

(Monthly)

Answer 1

Comparable Sold Price (while rented) / Gross Annual Rent = (GRM) Gross Rent Multiplier

Question 2

Gross Income Multiplier (GIM) Formula?

(Annually)

Answer 2

Value divided / Gross Income = (GIM) Gross Income Multiplier

Question 3

Net Operating Income (NOI) Formula?

(Annually)

Answer 3

EGI minus Operating Expenses = (NOI) Net Operating Income

Question 4

Overall Capitalization Rate Formula?

Answer 4

Net Operating Income (NOI) / Property Value = Overall Capitalization Rate

Question 5

Direct Capitalization:

Answer 5

Net Operating Income (NOI) / Overall Capitalization Rate = Value

Question 6

Potential Gross Income (PGI) Formula?

Answer 6

of units X monthly rent X 12 months = PGI

Question 7

Effective Gross Income (EGI) Formula?

Answer 7

PGI minus vacancy and collection loss ONLY = EGI

Question 8

Operating Expenses?

Answer 8

Day-to-day costs of running a building = Operating Expenses

(i.e. repairs and maintenance, but not including
debt service or depreciation)