While both cap rates and the Gross Rent Multiplier (GRM) are used to assess properties, they differ significantly:
- GRM: This metric divides the purchase price by the total rental income, but it doesn’t factor in operating expenses.
- Cap Rate: This metric accounts for both income and operating expenses, offering a more comprehensive picture of the property’s profitability.
Cap rates tend to provide more accurate insights into a property’s potential return and risk, making them a preferred tool for many investors.