Where this fits on the exam
| Official syllabus topic | Valuation and General Calculations: income-based multipliers and rate of return |
|---|---|
| Official PSI area | Real Estate Calculations |
| Published weight | 7% of the national portion |
| Source edition | PSI Georgia Candidate Information Bulletin dated July 1, 2026 |
The Rule
PSI publishes a weight for the complete official area, not a guaranteed count for this individual calculation. Follow the stated facts, units, time basis, and rounding instruction.
Formula and variables
| Symbol or term | Meaning |
|---|---|
| Sale price | Price of a comparable income property used to derive the multiplier |
| Gross rent | Rent before operating expenses, using the same monthly or annual period throughout |
| GRM | A market multiplier with no percent sign |
Step-by-step method
- Confirm whether every rent amount is monthly or annual.
- Derive the GRM from a comparable sale by dividing its price by its gross rent.
- Apply that multiplier to the subject property's gross rent for the same period.
- Keep GRM as a multiplier, not a percentage or capitalization rate.
- Use NOI and cap rate instead if the question supplies net income and asks for direct capitalization.
Georgia-specific distinction
Worked examples
Example 1: Monthly GRM
Scenario. A comparable duplex sold for $288,000 and produces $2,400 gross rent each month. The subject produces $2,650 monthly.
- GRM = $288,000 / $2,400 = 120.
- Subject value = $2,650 x 120 = $318,000.
Answer. The GRM estimate is $318,000.
Reasonableness check. The subject earns about 10.4% more monthly rent, so its indicated value is about 10.4% above the comparable price.
Example 2: Annual GRM
Scenario. A small property sold for $420,000 and has $35,000 annual gross rent.
- Annual GRM = $420,000 / $35,000 = 12.
- The answer is a multiplier, not 12%.
Answer. The annual GRM is 12.
Reasonableness check. Using monthly rent of about $2,916.67 would produce a monthly GRM of 144, which is 12 times the annual GRM.
Common exam traps
- Mixing annual price-to-rent data with monthly rent
- Using NOI instead of gross rent
- Writing a percent sign after GRM
- Dividing rent by price and accidentally calculating a gross yield
Original practice questions with detailed explanations
These original instructional questions map to the July 1, 2026 PSI outline. They are not copied from PSI or any live examination. Write the setup before opening the explanation.
Question 1A comparable duplex sold for $330,000 and rents for $2,750 a month. The subject rents for $2,500 a month. Using a monthly GRM, what value is indicated for the subject?
- A. $300,000
- B. $330,000
- C. $363,000
- D. $3,600,000
Show answer and explanation →
Answer: A. $300,000
The GRM is $330,000 / $2,750 = 120, and $2,500 x 120 = $300,000. $363,000 flips the rent ratio and pushes the lower-rent subject above the comparable. $3,600,000 multiplies annual rent by a monthly GRM.
- A. Correct. The comparable's monthly GRM is 120, so $2,500 monthly rent indicates $300,000.
- B. Incorrect. $330,000 repeats the comparable price without adjusting for the subject's lower rent.
- C. Incorrect. $363,000 reverses the rent relationship and overvalues the lower-rent subject.
- D. Incorrect. $3,600,000 multiplies annual subject rent by a monthly multiplier, overstating value twelvefold.
Question 2Local sales support an annual GRM of 11. The subject collects $3,000 a month in gross rent. What value is indicated?
- A. $33,000
- B. $327,273
- C. $396,000
- D. $4,752,000
Show answer and explanation →
Answer: C. $396,000
Annual gross rent is $36,000, and $36,000 x 11 = $396,000. $33,000 multiplies monthly rent by an annual multiplier. $327,273 divides by 0.11, treating the GRM as though it were a cap rate.
- A. Incorrect. $33,000 multiplies monthly rent by the annual GRM without first annualizing rent.
- B. Incorrect. $327,273 divides annual rent by 0.11, treating a multiplier of 11 as an 11% cap rate.
- C. Correct. $3,000 times 12 gives $36,000 annual rent; multiplied by 11, value is $396,000.
- D. Incorrect. $4,752,000 multiplies the correct annual-GRM value by 12 again.
Question 3A property has $60,000 annual gross rent, $21,000 operating expenses, and $18,000 annual debt service. The market annual GRM is 9. What value does the GRM indicate?
- A. $189,000
- B. $351,000
- C. $433,333
- D. $540,000
Show answer and explanation →
Answer: D. $540,000
GRM uses gross rent and ignores expenses, so the value is $60,000 x 9 = $540,000. $351,000 multiplies NOI by the GRM, which mixes the gross method with a net figure. $189,000 subtracts operating expenses and debt service before multiplying, but neither deduction belongs in this gross-rent calculation.
- A. Incorrect. $189,000 deducts operating expenses and debt service before applying a multiplier that requires gross rent.
- B. Incorrect. $351,000 applies the gross multiplier to $39,000 NOI instead of $60,000 gross rent.
- C. Incorrect. $433,333 divides NOI by 0.09, replacing the stated gross multiplier with an unsupported cap-rate assumption.
- D. Correct. GRM uses the $60,000 gross rent; multiply by nine to obtain $540,000.
Ready to move on?
You have this calculation down when all of these are true.
- I keep monthly and annual rent periods consistent.
- I derive GRM as price divided by gross rent.
- I apply GRM by multiplying the subject's gross rent.
- I never attach a percent sign to GRM.
- I can explain why GRM is less precise than a calculation using NOI.
Recommended next lesson
Continue with Capitalization Rate and Value. The next lesson swaps gross rent for net operating income and the multiplier for a rate, so value becomes NOI divided by the cap rate.
Return to the complete calculation hub, formula sheet, or mixed math drill.