The GRM formula
Gross rent multiplier = property price ÷ annual gross rent
A $240,000 property that rents for $2,400 a month brings in $28,800 a year. Its GRM is $240,000 ÷ $28,800 = 8.33. Lower is better: you are paying fewer dollars for each dollar of rent.
Gross yield is the same idea, upside down
Gross rental yield is annual rent divided by price. The example above yields 12%. A GRM of 10 is a 10% gross yield; a GRM of 12.5 is 8%.
How to use it
GRM is most useful for comparing similar properties in the same area, where taxes, insurance and condition are roughly alike. If comparable duplexes sell at a GRM of 9 and one is listed at 7, it is either a bargain or hiding a problem, and both are worth knowing.
You can also use it to estimate value: annual rent multiplied by the local GRM gives a rough price.
What it leaves out
Everything except price and rent. GRM ignores vacancy, expenses and financing, so two properties with the same GRM can produce very different cash flow. Cap rate brings in expenses, and cash-on-cash return brings in the loan.