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comparables are reflected in the rents of each property. If the sales used to extract a GIM from
the market are valid and the properties are comparable, the resulting factor should produce a
reliable indicator of value for the subject. Using a GIM to arrive at an estimate of value is one
form of direct capitalization.
When the GIM is used to capitalize income, the relationship between I (income) and V (value) is
expressed as F, (factor or multiplier). A factor is the reciprocal of a rate, or F = I
÷ R. Using this
basic formula, the GIM can be derived thus: Value = Income
÷ Rate, or V = I ÷ R
After extracting a GIM from the market, the gross income of the subject for a single period is
multiplied by a factor to produce an estimate of value. The multiplying factor is called a gross
rent multiplier (GRM) if the period is one month. It's called a GIM if the period is one year.
Generally, monthly rents are used for single-family residences and annual incomes are used for
other income-producing properties.
To properly develop a GIM study, use all available comparable sales. Properties from which a
GIM is developed, and properties to which a GIM is applied, must be similar in effective age,
quality of construction, and use. For example, it would not be appropriate to apply a GIM to a
20-unit property that was developed from sales of 4–to 6–unit properties.
When developing a GIM, give careful consideration to:
Gross income-to-expense ratio—The gross income-to-value relationship may be different for
similar properties depending on the expenses involved in producing the income. The gross
income for an office building where rent includes heat, lights, water, and janitorial service will be
substantially greater than the gross income from an identical building where these services are
not furnished. If you develop a GIM from a sale in which these services are furnished and apply
it to the income of a building that does not include the same services, you will not get an
accurate indication of value.
Land-to-building ratio—A large land-to-building ratio may indicate that a sale property includes
excess land. Such a sale may produce a higher than normal GIM.
Remaining economic life—A sale of a building with a short remaining economic life may
produce a low GIM. Applying the low GIM to a building that has a longer life will indicate a value
below market.
The following example of how to develop a gross income multiplier from a sold property includes
an unusual amount of services. Typical service furnished for retail stores in the area is water
only.
Retail store sales price: $150,000
Rentable area: 10,000 sq. ft.
Gross income: $ 22,500 ($2.25/sq. ft.)
Services furnished: Heat, lights, water, janitorial
Comparable space rents for: $ 2/sq. ft. with water only
Adjusted gross income: $ 20,000
$150,000 ⎟ $20,000 = 7.5 GIM
Convert gross income into an indication of value using the GIM developed in the previous
example:
Gross income attributable to subject $ 21,450
Indicated GIM 7.5
Value indication (7.5 ⋅ $21,450) $161,000 (rounded)