Making an Offer

[Michael Barger]

My goal is to purchase a rental property within the next 6 months. I have the means to purchase one now, I just want to make sure I know what I am getting into prior to actually getting into it. I wish I would have found this site sooner. I learned more here than in some books.

One thing, I am struggling on is that when purchasing homes from on MLS, I never know how much I should ask below the asking price. I heard the saying "If you arent embarrased, You aint asking low enough" but is there a general rule as to the max you offer below asking price?

[Jon Holdman]

On my side of Denver, a 2BR house will rent for about $800/month. Over on the east side, the rent's about the same. On the east side, especially in areas that have hard hit by foreclosures, you can buy that house as a REO for maybe $60K, $75-80K all day. Over here, the same house is $150K. If you were trying to buy rentals, you'd want to be looking on the east side, not here.

Let me take that a step further. Start with $800 rent. Subtract 50% for all expenses, leaving NOI of $400. Subtract $100 for the desired cash flow, that leaves $300 as your max payment. At 7% for 30 years, that will pay for a $45k loan. If a house is listed at $60K, you might manage to buy it for $45K. If its listed for $150K, no way are they coming down to $45K.