Deal Analysis - Need Help! Is it worth haggling over 6K??

[Kyle Kelley]

Hi all, I need some help analyzing a potential deal. I will provide the basics of the scenario:

2 properties for 1 price: 

Sale Price : $56000 vs $50000 

Total rent : $1450

Vacancy (8%) : $116 (although both properties tenanted and staying, included in the costs)

Operating Expenses : $408 

Net income: $926

Cash Flow Minus Mortgage @ $56,000 = $625         Cash Flow Minus Mortgage @$50,000 = $657

I had 50K in mind as purchase price, seller says he's at 56K and seems to be pretty firm, should I really be concerned about haggling over 6K when its only going to result in $32 cash flow difference? Seems like I would be able to recoup that 6K rather quickly, within a year if my math is right. Any help and input is much appreciated! 

[J Scott]

Originally posted by @Account Closed:

Um, what is the as is market value?  If it's $50,000 can you explain why you would pay 12% over market?

I can't speak for Kyle, but market value is irrelevant to me.  I will happily pay over market value for an asset that generates the return I seek.  In fact, I've paid over market value for lots of houses I've flipped -- generally they are distressed properties where, if I were to get an appraisal, the appraised value would come back at less than what I'm willing to pay.

But, I don't care.  As long as I can spend some amount of money on rehab and then resell the property for an amount where I can still make a nice profit, I don't care if my original purchase price as below market value, at market value or above market value.  

This is especially true of single family houses being used as income properties. Market value is generally going to be defined by the sales comps in the area; but an investor buying for cashflow isn't going to care about sales comps and will determine his own value based on the NOI and his desired profit target. Market value is completely irrelevant as long as there is no plan to sell the property any time soon.