Gross Rent Multiplier (GRM) is used in evaluating rental property investment. One rule of the thumb ratio is 1% for monthly rent over purchase price. For ratio over 1%, you will most likely make money after finance cost and taxes.
It can be used to evaluate renting vs buying decision for home buyer. If the likely rent for the house you are buying is close to or over 1%, buying has more advantage. If it's far below 1%, renting costs less.
Good deals of course are not plentiful. The 1% is a high threshold filter to recognize the few good deals right the way.
Rule of the thumb is a rough guess, gut feeling kind of guess. For quick guess without detail analysis, you want to build lots of cushion into the decision. The 1% will "most likely make money" because it has lots of cushion built in.
You can do more detail analysis with CAP/IRR/interest rate for more marginal deals.
7% annual GRM has too little margin IMO. Assuming operating cost (expenses+taxes) is 40% of gross, that gives you about 4.2% CAP rate. You are making a tiny profit after paying a 4% mortgage. Any down turn at rent, increase at expenses, or vacancy would bleed it into red.
It can be used to evaluate renting vs buying decision for home buyer. If the likely rent for the house you are buying is close to or over 1%, buying has more advantage. If it's far below 1%, renting costs less.