The Gross Income Multiplier (GIM) or Gross Rent Multiplier indicates how many times the price/value of a commercial property investment is greater than the gross income it delivers to its owner.
It should be noted that there are two concepts of gross income in the property industry, the Potential Gross Income (PGI) and the Effective Gross Income (EGI), which are of course calculated in a different way. Within this context, there are also two respective multipliers that involve a property’s gross income, the Potential Gross Income Multiplier (PGIM) and the Effective Gross Income Multiplier (EGIM).
The formula for EGIM is the following:
EGIM = Market Price / Effective Gross Income (EGI)
The formula for the Effective Gross Income (EGI):
EGI = Potential Gross Rental Income + Other Income – Vacancy & Bad Debt Allowance
Each of the 2 calculators below allow you to automatically calculate EGI and EGIM Simply enter the data in the form to calculate. The first one is used to work out EGI and the second one below that for EGIM.
It is more meaningful to calculate the EGIM on an annual basis and thus the annual Effective Gross Income is typically used in this formula. If a monthly EGIM is desired then the monthly EGI should be used.
Notice that the Potential Gross Income in the EGI formula includes primarily rental income, but it accounts also for any other income that may be produced by a commercial property, such as income from vending machines, laundry room, parking, etc. The vacancy accounts for space/units that remain vacant during the year and, as such do not actually provide any rental income to the landlord, while bad debt allowances cover any rent that is owed during the year but is not paid by the tenants with valid contracts.
Below we provide an example of calculation of effective gross income and the respective annual EGIM.
Potential Gross Rental Income = £125,000
Vacancy and Bad Debt Allowance (8%) = £10,000
Other Income = £5,000
Market Price = £1,000,000
Effective Gross Income = 125,000 + 5,000 – 10,000 = 120,000
EGIM = 1,000,000/120,000 =8.33
Thus, in this example, the asking price is 8.33 times greater than the effective gross income produced by the property.