Running the Number: Why does everything seem so Expensive?

[Cory Melick]

Hi Biggerpockets!  I need a little help or guidance.  I feel like many of the properties in my area are overpriced. 

I'm looking to purchase SFR properties in Charlotte, NC and the surrounding area (concord/kannapolis). I specifically targeting properties under $100k and that have been listed on the MLS for 120+ days. The reason is i'm hoping some of these owners may be willing to consider some sort of owner financing.

I look at what the property would rent for (rentometer, hotpads, craigslist) and subtract common expenses to determine the NOI. Then apply the cap rate i'd like (10%) to determine my offer. Most of the times my offer is around half of their asking price. I mean I should expect the property to be overpriced to some degree (that is why is still listed after 120+ days) but this seems crazy. And i'm using liberal expenses, if I apply the quick rule of 50%, the situation is even worse.

Ex: 124 Main St. will rent for $1000/mo. Apply 50% rule and your monthly NOI is $500. Yearly NOI of $6K. Apply a 10% cap and purchase price is $60k. They have it listed for $105k. Even if I take out property management the offer price would be $72K.

I know my example basically meets the 1% rule, but after the finance charge, there just doesnt seem like much meat left on the bone. Anyone else noticing this? Are MLS prices just inflated? Is this normal for Charlotte, NC ? Thoughts?

Thanks guys!

Cory Melick