How much is too much off of MLS for decent return?

[Kevin Sage]

Hi everyone, I recently looked at a local B/B+ property that has a longer than average time on the MLS. Both the agent and myself agree that its overpriced by ~$20,000, mostly due to the fact that besides paint, carpet and appliances the house hasn't been updated for 20+ years.

I am familiar with local rental prices and feel that this property is on the lower end of comparable houses because if its size and number of bathrooms. I've used the BP Rental Property calculator and excel for an IRR and found that I need to purchase the house for $100k (40%) off of MLS price to average 15% over 5 years (this includes $25k in upgrades, equity, in the house and $100 a month rental in profit). The 10 year return comes out to be 7%. This is with conservative inflation and rental increases at 1%.

The question is 15% too high for expectations for an average return for 5 years? I feel comfortable with with the numbers, although I admit they are conservative. My agent said he would make any offer that I want, but thought 40% off was too steep and their suggested price provides negative cash flow and 4% IRR. I'm just trying to figure this out for future properties. I appreciate any thoughts or words of wisdom that anyone may have.