Buying and Understanding Profit Is Complicated - Here Is What You Need To Consider

[Ken M.]

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Is there an existing formula that considers acquisition costs, interest rate, inflation, appreciation, cap ex, rent and so on, in determining what an offer price should be to achieve an average 5% yearly return over 5 years at a given interest rate?

I'm looking to solve for the following

1. Offer Price $xxx,xxx (To be solved for)
2. Asking Price $ 438,750
3. 35% Above Historical Value xx% (35%)
4. Historical Value $ 325,000 (To be solved for)
5. Rent $ xx,xxx (To be solved for)
6. Rent Actual .005 of ARV
7. Offer Purchase = $ xxx,xxx (To be solved for)
8. Amount Down 20%
9. Amount Down $ xxx,xxx (To be solved for)
10. Closing Costs $ 3,500
11. Interest Rate 7%
12. Prop Taxes Yr Rate 0.005 (variable by market)
13. Insurance Yr Rate 0.0064 (variable by market)
14. Inflation 2.9%
15. Appreciation 6.4%
16. Cap Ex 10%
17. Repairs 10%
18. Vacancy 8.33%
19. Prop Manager 10%
20. Yearly Return 5%

How does one calculate at what price "off of asking", to buy if: we assume in 5 years prices will be back to historical norm If a property is currently priced at 35% above historical value (which is what an economist is saying is the current situation on the MLS)

Purchase Price with 20% down, and a 7% int rate, Inflation is at 2.9% and appreciation is at 6.4%, with 5% return on a yearly basis

The following links suggest some costs:

https://www.biggerpockets.com/forums/52/topics/588344-how-much-do-you-budget-for-capex-and-repairs-on-single-family

I have this figured out for buying SubTo, and for Wraps, But I don't have experience with using a bank to buy properties and figuring costs. since I never use them. However, it might make sense in the future to use banks. Also, I understand places like CA and TX have higher tax rates. If the tax rate is input as a variable, that covers the discrepancies. Inflation & appreciation will vary by year and by place, so, input as a variable as well. But I'm looking for a general calculation to use as I investigate various markets that I can modify as needed.