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How these calculators work:

Determining the value of an income producing property requires a different approach than for a single family home. Rather than the contributory values of amenities such as swimming pools, fireplaces or the number of bedrooms, an income producing property's value is based predominantly on the net income that property is able to generate. Granted, no two properties are ever identical so there are always nuances to consider, but the heavy correlation between income and value allows for the use of some fairly quick and reliable techniques to determine a ballpark value if income and expenses are known. One such method uses a calculated factor called the GRM to compare similar properties in the same market. GRM stands for "Gross Rents Multiplier" and it is calculated by taking the purchase price of a property and dividing it by the gross yearly rents. For example, a property listed at $100,000 which generates $10,000 per year in gross rents would have a GRM of 10.0. One way of thinking about GRM is to consider it the number of years it would take for the rental income to pay for the purchase price, if there were no expenses to consider. This is a quick and dirty way to compare income properties. Also, by taking a look at prior sales and computing the GRM for them, a median GRM can be calculated for a particular area, which then tells you if a particular listing is a good value, or if you have a property you are thinking of selling, you can multipy your gross rents against the median GRM for the area to come up with a rough value.

Earlier, we mentioned that the GRM does not take expenses into consideration, but of course, there will be expenses! Things like taxes, insurance, utilities, maintenance and property management fees will eat into your bottom line, so these are important to consider as well. It would be incredible if these expenses could be included in an automated analysis but unfortunately, the only expense that is tracked by the MLS (Multiple Listing Service) are the taxes. Because taxes can vary considerably from area to area, we include taxes in our GRM evaluations by deducting the yearly tax amount from the gross rents before dividing it into the purchase price in a method we have dubbed the MGRM ("Modified Gross Rents Multiplier"). Lets say you were considering the purchase of a rental property and were deciding between two possibilities; both cost $100,000 and both bring in $10,000 in gross yearly rents, but one has property taxes of $2,000 and the other has taxes of $5,000. This would mean that the first has a MGRM of 12.5 and the second has a MGRM of 20. There is a considerable difference there, as well there should be - taxes for the first property eat up 20% of your gross rent, and the second eats up 50%! All else being equal, the first property will have a higher market value because it brings in greater net income. As we mentioned earlier, it would be great if we could track all expenses in the MLS data, but since we can't, the least we can do is to factor in the taxes. As such, the calculators here both use the MGRM method when computing value. (The first calculator displays the GRM as well, but it is just for comparison purposes; the underyling calculations do not use it.)

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Stats for nerds:

The data that powers these calculators is from the NYS Alliance of MLS's/Chautauqua-Cattaraugus Board of REALTORS®, Inc. MLS. It encompasses X multi-family properties that sold in the City of Dunkirk from X through X. Over those X months, sale prices ranged from X to X with a median price of X. MGRMs on those properties varied from X to X, with a median MGRM of X.

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