Self Storage Investing like all investing, is a numbers game. As such, there are a bunch of
formulas that come in handy when you are out there trying to find your first or next
storage deal. One of the formulas that I use first whenever I am trying to figure out
if a particular property has potential is something called the GROSS RENT
MULTIPLIER (or GRM for short). The gross rent multiplier is probably the most
simplistic formula that I can share with you. But don't let that fool you. It is also
incredibly helpful. I use it all the time; And it can be very useful in understanding
the metrics of any property whether it be an existing property, a conversion play or
ground up development. It can also help you fill in missing pieces when you don't
yet have all the data you'd like to have to properly analyze a property. The formula
itself is quite simple. Boiled down, the gross rent multiplier or GRM is found by
dividing the purchase price by the gross annual rents. Let's look at a quick
example. Let's say a small property has an asking price of $213,000 and that the
gross potential annual rent (the most money the property could bring if completely
full throughout the year) is $60,000. $213,000 divided by 60,000 is 3.55.
Ok, so that doesn't mean too much unless we know what a “good GRM” is, right? Based on my experience buying millions of dollars in storage over the last 8 years, I will tell you
that a GRM less than 5 peaks my interest. At that level, I'm not jumping out of my
chair but I am intrigued. There could be some potential and I will usually poke
around a little more to see if the scales start to tip toward or way from the deal.
Once the GRM dips below 4 though, it becomes very interesting to me. Diving too deep into
why exactly that is, is a bit beyond the scope of this humble little blog of mine but It
relates to the way this number, the GRM, relates to the other industry standards
that exist (things like income:expense ratio which I've explored in a prior post).
Simply put, when you have a GRM under four, the ROI is likely going to be pretty
darn healthy!
Hopefully that makes sense. It's relatively straightforward. But again, don't let that fool you. We can apply this formula in a lot of ways. For instance, if we are looking at a
property where the owner wants us to make an offer without presenting an asking
price (annoying but it does happen), we can use our target GRM to reverse
engineer a ballpark value for the property. Perhaps I will explore this idea more in
depth in a future post. In the meantime, I hope you found this helpful and invite
you to join me and a bunch of other Storage Investors in a Private Membership
Site that we have. You can gain instant access to a bunch of Video content
right now (including a deeper dive into a more sophisticated application of GRM)
by enrolling in The Storage Rebellion University. Click here to learn more