GRM, LTC, Loan Constant, and Other Key Metrics

Cap rate, NOI, cash-on-cash, DSCR, LTV, IRR, and equity multiple are the heavy hitters — the metrics every deal comes down to. But a handful of smaller metrics show up often enough in conversation, OMs, and lender term sheets that you need to know them too. This lesson covers all of them.

Gross Rent Multiplier (GRM)

A quick-and-dirty valuation ratio, mostly used on small multifamily. It's what you'd get if you couldn't be bothered to calculate NOI and just wanted a rough sense of the price.

Example. A 12-unit building priced at $1,800,000 collecting $180,000 in annual rent = 10.0 GRM.

Why GRM is popular but limited

• Popular because: It's fast, requires only two numbers, and works when you don't have operating expense data.
• Limited because: It ignores expenses entirely. A 10 GRM building with 40% expense ratio and a 10 GRM building with 60% expense ratio are radically different deals at the same GRM.

Use GRM for quick screening and back-of-envelope comparisons across similar properties in the same submarket. Never use it for an actual underwriting decision.

Typical GRMs (2026):

• Small multifamily in Central Florida: 9–12
• Strong submarkets: 11–14
• Weaker markets with older stock: 6–9

Expense ratio

The percentage of your gross income eaten by operating expenses. It's the #1 sanity check on whether an OM is lying about NOI.

Benchmark expense ratios (2026):

| Asset class | Typical expense ratio | |---|---| | Multifamily | 35–50% | | Retail (NNN) | 5–15% | | Retail (multi-tenant) | 25–40% | | Office | 35–50% | | Industrial (NNN) | 10–20% | | Self-storage | 30–40% |

If a broker OM shows a multifamily expense ratio of 25%, they're lying, they've stripped out reserves and management, or they found an impossible deal. Run the numbers yourself.

Loan-to-Cost (LTC)

Like LTV, but measured against total cost (purchase + renovations + soft costs) instead of value. Used on value-add and construction deals where the lender needs to fund ongoing work.

Example. You're buying a property for $4M and planning $800K of renovations. Total project cost = $4.8M. The lender funds a $3.6M bridge loan = 75% LTC.

Bridge lenders and construction lenders size to LTC. Permanent lenders size to LTV. Know which your lender cares about.

Loan constant (also called "mortgage constant")

The annual cost of the loan as a percentage of the loan balance. On a fully-amortizing loan, it's higher than the interest rate because it includes principal payments.

Example. A $1,000,000 loan at 6.5% interest, 25-year amortization, costs about $81,000/year in debt service. The loan constant is $81,000 / $1,000,000 = 8.1%.

Why it matters for loan sizing

You can size a loan quickly using the loan constant and DSCR:

With NOI of $200,000, minimum DSCR of 1.25, and a loan constant of 8.1%:

Max Loan = ($200,000 ÷ 1.25) ÷ 0.081 = $1,975,309

This is exactly the calculation lenders do. Memorize it.

Break-even occupancy

The minimum occupancy you need to cover expenses and debt service. If break-even occupancy is 80% and the building is currently 95% occupied, you've got 15 percentage points of cushion.

Example. A building has $100K in OpEx, $120K in debt service, and $300K gross potential income.

Break-even = ($100K + $120K) ÷ $300K = 73.3%

You'd need to fall below 73% occupancy before you couldn't cover expenses and the mortgage. That's a margin of safety.

Lenders sometimes use break-even occupancy as a secondary underwriting check, especially on value-add deals where DSCR is expected to improve over time.

Rent per square foot

Often the way rent is quoted in commercial. "Asking $28 per square foot NNN" means $28 per square foot per year of base rent, plus the tenant pays taxes, insurance, and maintenance.

Example. A 2,000 sq ft retail space at $28/sq ft NNN = $56,000/year base rent.

The per-square-foot comparison is the only apples-to-apples way to compare rents across different property sizes and to benchmark against market data.

Price per unit / price per square foot

Quick-and-dirty valuation comps. Useful for screening but not for final valuation (because they ignore income, age, and condition).

Example. A 40-unit apartment building at $6M = $150,000 per unit. Compare against recent sales in the submarket.

Debt yield

Already covered in the previous lesson, but reminder:

How much yield the loan would produce if the lender had to foreclose. Institutional lenders typically require 8–10%+.

The rent multiplier paradox

Here's a quirk of the GRM/cap rate world new investors hit:

• GRM and cap rate move inversely. Higher GRM = lower cap rate and vice versa.
• A 10 GRM implies roughly a 6% cap rate on a multifamily with typical expense ratio.
• A 15 GRM implies roughly a 4% cap rate.

You can approximate GRM-to-cap rate conversion with:

Example. GRM of 10 on a property with a 40% expense ratio:

Cap rate ≈ (1/10) × (1 − 0.40) = 0.10 × 0.60 = 6.0%

It's approximate, but good enough for mental math.

What to take away

• GRM is a quick screen, never a final underwriting tool.
• Expense ratios benchmark whether an OM's NOI is realistic.
• Loan-to-cost (LTC) is for bridge/construction; LTV is for permanent.
• The loan constant is the annual cost of debt as a % of loan balance — use it to size loans in your head.
• Break-even occupancy tells you how much vacancy cushion the deal has.
• Rent per square foot is the only apples-to-apples rent comparison.
• GRM and cap rate move inversely; a rough conversion is cap rate ≈ (1/GRM) × (1 − expense ratio).

Next lesson: we'll put all the metrics you've learned together and walk through a real MaxLife NNN deal from start to finish.