Posted by Steve Heller on January 30, 2000 at 08:24:46:
Seems like an inflexible/unmotivated seller. I would try to stick with motivated sellers. You should look for properties where you can get at least a $150 per month cash flow. The seller here is not looking at you as an investor. He is trying to sell to owner/occupant s, those that will be living in the home (they always pay more). What part of the country are you in. Its a sellers market almost everywhere.
Hope this helps,
Steve (Tulsa)
Posted by Tony_PA on January 29, 2000 at 21:06:13:
How can I determine value based on rental income alone? Is there a formula. My situation is the comps check out and so do the appraisals, but the cash flow don’t work. I know it’s because the seller is asking too much and I want to come back with numbers to show him proof. He doesn’t seem to want to come off of price.
This analysis works best with multifamily homes (5 or more units): Take the gross operating income (GOI) - 40% (for expenses)= Net Operating Income (NOI). NOI / Asking price = Cap Rate. The higher the Cap Rate the better the price of the property. 7+ is good, 7- is bad. Of course this is just a rule of thumb.
Perform your financial analysis to determine your cash flow based on the asking price. Take your Gross Operating Income (GOI), subtract expenses. That number equals you Net Operating Income (NOI). From your NOI you must pay your mortgage. What ever is left over is your cash flow (+/-). If you end up with a large neg., you need to ask yourself if this property will work for your situation.