Not another 50% question! Read a blog already… : )

[Michael Spindler]

Hi BP,

Hoping to get some feedback on this, as this stage of planning is crucial to my strategy and the source of many headaches… Sorry this post is so long.

First, I am guessing the reason targets are still on the MLS is because they are not a deal? When I apply an honest 50% rule, the monthly NOI on 3 doors is $188 ($62 each) and it would take 92 months to recover my cash. Example outlined below.

Is it normal and expected by real estate agents to get offers of 20-40% less than asking? When my Grandmother was an agent, it drove her insane and she stated that her reputation suffered for the low ball offers she was forced to submit. That kind of bothers me as I want agents to take me seriously. What is your approach?

To better aid in my analysis, is there another rule of thumb you work by or in conjunction with? Like minimum dollar amount per door?
I know it would be a bad idea to fudge on the 50% as my targets are 80-100 years old with flat tar/gravel roofs. It is only a matter of time before an expensive repair/replacement. 35% and the numbers look great, but I think that is a recipe for failure.

The other problem is 4-plexes in my price range are not common. Than why do I want them? More doors per mortgage, but I am running into the same problem punching numbers on duplexes (MLS) when I stick to the 50% rule and calculating 15% below asking. Do you have a standard % offer below asking?

I can only affect the NOI outcome on the purchase price and do not want to stray too high on rents, to avoid vacancy issues.

For Ex: A nice 3 story 3-plex, asking $76K. By some miracle, let’s just say they accept 15% less for $64,600. Still dismal results as outlined below.

ROI % 11.03% CAP Rate 4.04% CCR 14.14%

Ask Price $64,600.00
Loan $51,680.00
Down 20% $12,920.00
Closing 6% $3,100.80 (Estimated high for cushion)
Reserves 6 mth $3,214.69 (PITI only)
Touch Ups 2% $1,292.00

Property Type 3
Rent / Unit 483.00 (Based on reported annual gross)
PITI 535.78
PM 10% 144.90
Expenses 40% 579.60
Total Expenses 1260.28

Monthly Gross $1,449.00
Annual Gross $17,388.00

Monthly NOI $188.72
Annual NOI $2,264.61

Recover Funds $20,527.49 91.7 Months

Thank you for taking the time to read and I sincerely appreciate any guidance you might suggest.