How do you value equity in a deal?

[Ryan Braman]

I have an opportunity to put an offer on 7 units (5 SFH + a duplex) that were recently appraised for about $700k. They all have serious deferred maintenance, I'm looking at probably 2 new roofs, 2 new furnaces, 2 new mini-split A/C systems, and probably a lot of new appliances within the first 3 years if I purchase. Right now, their gross rents are $4,100, and I can renovate/occupy one of the duplex units for $60k to bump my gross rents to $5,100. There is not a whole lot of other work I can do in terms of increasing cash flow.

I was considering making an offer of $400k, which would allow me to put in the $60k to reno the duplex and another $50k for the mentioned needed repairs plus the inevitable ones that I don't see coming. Financed at 80/20..that would put me in at $190k for about $60k/yr gross. This would let me hit my cash flow objectives.

If the seller doesn't want to sell for that, and asks for something closer to their appraised value, how do I place a value on the equity that I capture in the deal. In other words if I buy for $600k, value is $700k, so I have an automatic $100k equity on the project...is there some guidelines on how much equity makes it a good deal? Or is this one of those things that is completely dependent on my individual position? I've only used cash flow to analyze deals before, so I'm struggling to wrap my head around how to consider equity..

Thanks!

Ryan