I look at multifamily deals the way some people read a restaurant menu: first for the obvious numbers, then for the hidden costs that make a “great value” deceptive. Over the years I’ve relied on three quick, complementary metrics to sniff out overpriced apartment buildings before I spend time on deeper underwriting: cap rate, gross rent multiplier (GRM), and price per door. Each tells a different story. Together, they form a fast, evidence-based filter that saves time and prevents emotional overbidding.
Why these three metrics?
Each metric is simple to calculate and widely available in listings or broker packets. That doesn’t make them sufficient for investment decisions, but it makes them excellent first-pass screening tools:
- Cap rate (net operating income divided by price) captures how the market prices a property’s cash flow after operating expenses — the best single short-cut for yield.
- GRM (price divided by gross scheduled rent) is less picky about expense assumptions and quickly highlights deals that are expensive relative to rent roll.
- Price per door (purchase price divided by unit count) is especially useful in standardized markets and for quick portfolio-level comparisons — a one-number sanity check that’s easy to benchmark.
How I calculate and use cap rate
Cap rate = NOI / Purchase price. NOI is net operating income (gross potential rent minus vacancy allowance and operating expenses; exclude financing, depreciation and capital expenditures). If a broker provides an “as-stabilized” NOI, I ask for the pro forma assumptions behind vacancy and expense reductions.
Rules of thumb I use (these vary by market and vintage):
- Primary coastal markets (major metros): acceptable cap rates often range 3.0%–4.5% for stabilized assets.
- Secondary/sunbelt markets: 4.5%–6.5% is more typical.
- Value-add, higher risk opportunities require even higher cap rates — often 7%+ — to compensate for execution risk.
If a listing’s cap rate is noticeably below market average for the asset class and location, that’s a red flag — especially when the seller is pitching growth or occupancy improvements to justify the price. Low cap rate can be legitimate (brand-new building, exceptional rent growth prospects), but it often means buyers are bidding on future rents rather than today’s cash flow.
GRM: the blunt instrument that’s surprisingly revealing
GRM = Price / Gross Scheduled Rent (annual). Because GRM ignores expenses, it’s crude — but that’s useful. If two properties in the same submarket have similar unit mix and amenity sets but GRMs of 8x and 12x respectively, the 12x deal is expensive relative to rent generation regardless of how you slice operating costs.
My practical checks with GRM:
- Compare to historical GRM trends in the neighborhood (use public records or CoStar reports where available).
- Use GRM to sanity-check a low cap rate: if GRM is high while NOI margins look optimistic, dig into the expense items and rent roll assumptions.
- Beware of listings that manipulate gross scheduled rent by assuming unrealistic rent-ups or deep rent growth in short timeframes.
Price per door: quick and dirty screening
Price per door = Purchase price / Number of units. It’s most helpful when comparing similar vintage and class within a metro or submarket. Institutional investors often quote deals by price per door for precisely this reason — it standardizes across unit sizes and operating structures.
How I interpret price per door:
- Establish local benchmarks: look at recent sales comps in the same zipcode or submarket rather than the whole city.
- Factor in unit mix: a property with more two- and three-bedrooms should command a higher price per door than one with mostly studios.
- Use this metric to flag outliers. If a property’s price per door is 30% higher than comparable sales with similar condition and tenant profile, that’s cause to question pricing assumptions.
Putting the three together: a screening workflow I use
When a new listing crosses my desk I run this quick checklist — it takes 10–15 minutes and saves hours later:
- Compute cap rate using stated NOI. Compare to market benchmark for that asset class and risk profile.
- Calculate GRM from gross scheduled rent. Compare to local GRM distribution (median, 25th/75th percentile).
- Compute price per door and compare to recent comps of similar vintage and unit mix.
- If any metric is an outlier on the expensive side, request rent roll, expense detail, and recent utility/maintenance invoices. Look for assumptions that tilt the underwriting (e.g., aggressive rent-up timelines, low replacement reserves).
Example: Screening three hypothetical listings
| Metric | Deal A | Deal B | Deal C |
|---|---|---|---|
| Price | $5,000,000 | $8,200,000 | $4,200,000 |
| Units | 20 | 40 | 14 |
| Annual Gross Rent | $480,000 | $840,000 | $300,000 |
| NOI | $250,000 | $380,000 | $160,000 |
| Cap Rate | 5.0% | 4.6% | 3.8% |
| GRM | 10.4x | 9.8x | 14.0x |
| Price per Door | $250,000 | $205,000 | $300,000 |
Interpretation: Deal C shows the lowest cap rate, highest GRM and highest price per door. Even without digging deeper, that’s a strong signal it’s priced for future performance or intangible value (brand, location buzz). If comps don’t justify it, it’s likely overpriced.
Caveats and adjustments I always make
These metrics are screening tools, not investment verdicts. Before I eliminate a deal because of a low cap rate or high GRM, I check for:
- One-time revenue items or expense anomalies in the NOI.
- Recent capital improvements that materially change operating costs or rent potential.
- Regulatory or zoning benefits (for instance, a property with approved redevelopment potential might justify a premium).
- Different accounting of reserves or management fees between listings (which can move cap rates by a few hundred basis points).
Finally, always contextualize these numbers by market cycle. In an overheated market you’ll see cap rates compress and GRMs expand across the board — that doesn’t make every deal attractive. I prefer to see conservative underwriting assumptions and evidence of durable rent drivers before paying a premium.
Using cap rate, GRM and price per door together has helped me avoid chasing frothy listings and instead focus my diligence on opportunities where the numbers — and the story behind them — line up. If you want, I can share a downloadable checklist or an Excel template that automates these calculations and highlights outliers based on local benchmarks.
