Effective Gross Income Multiplier = Sale Price ÷ Effective Gross Income.
It is not possible to calculate the anticipated gross income based on the information given, nor is there information on anticipated vacancy and collection losses. However, we are given the income the buyers expect to receive – the $925,000 reported on the owner's income tax return is, for this sale, the anticipated effective gross income.
We are asked to calculate an effective gross income multiplier; we don't need to go beyond effective gross income, and therefore we do not need the expense ratio, which we could otherwise use to calculate a net income. The expense ratio information, however, would be useful in comparing the EffGIM from this sale with other comparables – the comparables, and the property (or properties) to be appraised, should have similar expense ratios.
After determining the effective gross income, the calculation of the Effective Gross Income Multiplier is straight forward.
$7,400,000 (Sale Price) / $925,000 (EffGI)
It must be remembered that if the 8.00 EffGIM is used to value a motel, the resulting value will include the land, building, and personal property. If the business property section then assesses the personal property based on a 571-L report, there will be a double assessment of the personal property.