GRM is the fastest way to sanity check whether a property is priced reasonably for its rent. You divide the asking price by the annual gross rent and you get a single number you can compare to other properties in the same market. Lower is better. A GRM of 8 means the property costs 8 years of gross rent, which is strong. A GRM of 15 means it costs 15 years of gross rent, which is weak unless there is heavy appreciation potential. GRM completely ignores expenses, vacancy, and debt service, so it should never be your final underwriting number. It is a screening tool. If the GRM looks reasonable, you move on to real underwriting with NOI and cash on cash. If the GRM looks terrible, you walk. For landlord friendly markets with strong rent to price ratios, a GRM under 10 is solid. In coastal markets where appreciation drives returns, GRMs of 15 to 20 are normal.
Example
A duplex is listed at $240,000. Gross rent is $2,500 per month or $30,000 per year. GRM = 240,000 / 30,000 = 8. That is a strong GRM for most landlord friendly markets.