Low Ball Offer Advice

[Doug Johnson]

BP, 

How would you recommend putting together a fair offer? Check out the below example:


Value = NOI / Cap Rate

2019
Value = $35,350/ 8.40%

Value - $35,350/ 0.0840

Value = $420,833.33

Is this a correct way to analyze the value of a property? Any suggestions? 

[Joe Splitrock]

Originally posted by @Doug Johnson:

@Steve Morris the cap rate was provided on the listing.

Half the MLS cap rates are complete junk. Realtors either don't know how to determine NOI or more likely intentionally misrepresent. They leave out expenses and use rent roll instead of actual rents. Rent roll is rent rate of each property X 12, so it doesn't take into account vacancy or rents that were not collected. Ask for an operating statement showing all expenses and income from the last two years. Make sure the expenses include management expense. Other tricks that agents try to play are statements like "rents are below market, opportunity to increase rents to increase cash flow". This is total BS, because if rents could be increased, the current owner would do it. Maybe you can manage it better and raise rents, but never use potential performance for valuation or you will overpay.