What is the best price to offer?

[Tracey Williams]

Hi everyone

I went to check out a 4 unit multi-family today.

It's listed for $269,000
The rent/unit is $650.00
I check out the value on the auditors site and it value for $179,000

It was purchased in 2005 for $160.000
It was built in 1975
It's in a great sch district and 100% occupied

What will be the best offer price for this property?

I never feel confortable offering a price higher than the auditor value price but I feel offering close to 90k below the asking price may offend the seller (going by the price on the auditor's site)

The seller has done some renovation since he bought it(new roofs, new windows)

My question is " what is the best offer when the listing price is way too high than what it's value for in multi unit apartments?

Thanks for all your great contributions :D

[Jon Holdman]

If by auditor you mean the county tax assessor then that number is pretty useless.

You should pay what its worth. Ohio appears to have no shortage of good deals. If this isn't one, I'm sure you can find one. Lets apply the usual assumptions of expenses being 50% of rent (read in the Rental property forum), 6% rate, 30 year term, 30% down. Lets assume you want to make $100/unit/month. Here's what its worth:

Rent: $2600
Expense: $1300
NOI: $1300
Cash flow: $400
Left for payment: $900
Max loan: $150,112.45

You should use that as your price, unless you're willing to invest your down payment for free.

Down: $45,033.74 (30%)
Actual payment: $630
Actual cash flow: $670/month, $8040 per year.
Cash on cash return: 17.8%

What if you use the $150K as the loan and bump it up for a 30% down payment:

Price: $214,446
Down: $64,334
Actual cash flow: $400/month, $4800/year
Cash on cash return: 7.5%

Yeech!

This place is only worth $150K. I highly doubt the seller will come off the crazy $269K price. If you were to pay that, with 30% down, your payment woudl be $1129 a month for a cash flow of $171/month, $2053 a year or 2.5% cash on cash return. Awful.