Posted by Bill K. - FL on February 22, 2000 at 08:14:11:
One way to quickly analyze income properties to see if they make any sense price wise is to look at the gross rent multiplier. Most investors I know, including myself, won’t pay more than 6 X gross in most situations. Analyzing this deal you will find the asking price to be 9.38 X gross which is Very high. The sellers are looking for an owner occupant such as yourself to pay a price based on the fact that you are looking for a place to live and are willing to pay a premium price for the privilege. You will find many duplexes, triplexes, and fourplexes fall into this category. Once you go over four units properties will be considered mainly from an investment point of view and priced accordingly. DOn’t assume you will have the same cash flow as the current owner unless you will pay cash for any equity in the property. More financing means a higher debt payment. Also don’t forget to consider all expenses in coming up with a net cash flow per month. What happens if you have one vacancy, have to replace an appliance, carpeting, do repairs? Do an eviction. (Sometimes these people don’t pay the rent)Also ask the listing broker for comps. There has to be some. Ask, How did you come up with that figure? Hope this helps.