what is a gross income multiplier 
a gross income multiplier gim is a rough measure of the value of an investment property it is calculated by dividing the property s sale price by its gross annual rental income investors can use the gim along with other methods like the capitalization rate cap rate and discounted cash flow method to value commercial real estate properties like shopping centers and apartment complexes understanding the gross income multipliervaluing an investment property is important for any investor before signing the real estate contract but unlike other investments like stocks there s no easy way to do it many professional real estate investors believe the income generated by a property is much more important than its appreciation the gross income multiplier is a metric widely used in the real estate industry it can be used by investors and real estate professionals to make a rough determination whether a property s asking price is a good deal just like the price to earnings p e ratio can be used to value companies in the stock market multiplying the gim by the property s gross annual income yields the property s value or the price for which it should be sold a low gross income multiplier means that a property may be a more attractive investment because the gross income it generates is much higher than its market value special considerationsa gross income multiplier is a good general real estate metric but there are limitations because it doesn t take various factors into account including a property s operating costs including utilities taxes maintenance and vacancies for the same reason investors shouldn t use the gim as a way to compare a potential investment property to another similar one in order to make a more accurate comparison between two or more properties investors should use the net income multiplier nim the nim factors in both the income and the operating expenses of each property use the net income multiplier to compare two or more properties drawbacks of the gross income multiplier methodthe gim is a great starting point for investors to value prospective real estate investments that s because it s easy to calculate and provides a rough picture of what purchasing the property can mean to a buyer the gross income multiplier is hardly a practical valuation model but it does offer a back of the envelope starting point but as mentioned above there are limitations and several key drawbacks to consider when using this figure as a way to value investment properties a natural argument against the multiplier method arises because it s a rather crude valuation technique because changes in interest rates which affect discount rates in the time value of money calculations sources revenue and expenses are not explicitly considered other drawbacks include example of gross income multiplier calculationa property under review has an effective gross income of 50 000 a comparable sale is available with an effective income of 56 000 and a selling value of 392 000 in reality we d seek a number of comparable to improve analysis our gim would be 392 000 56 000 7 this comparable or comp as is it often called in practice sold for seven times 7x its effective gross using this multiplier we see this property has a capital value of 350 000 this is found using the following formula v gim x egi7 x 50 000 350 000 