Gross Rent Multiplier = Sale Price / Potential Gross Income

The higher the Gross Rent Multiplier, the better, if you are the seller of a property.  Be sure to use annual income in this calculation.  You may also need to make an adjustment if the owner of the subject property pays for utilities.  Subtract amounts paid for utilities from income before constructing the ratio, so you’ll be able to make apples-to-apples comparisons among different properties.

Another way to look at the same ratio is:

Sale Price = Gross Rent Multiplier x Potential Gross Income

You may ask about the going rate for the gross rent multiplier in your area.  You can then apply this rate to your own rents and very roughly gauge the value of your property.  But be careful, we’ll see that basing a price on gross rents is not necessarily the best method of determining value.