I agree with Hai. You need to know what the ROI is before you can construct anything. To do that, you need to know what all of the expenses are. Don't forget to include a vacancy factor, replacement reserve and a maintenance amount. Call a couple of commercial brokers in the area and find out what the going cap rate is for this type of property. When you have the ROI and Cap Rate you can get a much better idea of what the property is worth -ROI divided by Cap Rate. Once you have an ROI you need to decide what your goal with the property will be. Do you want to wholesale it and make some money and be done or do you want to hold it and bring in some passive income. I, personally, would construct three different offers to the seller. One would be an owner finance deal that includes a small down payment (or none), principle only payments on the note (bigger payments to the seller every month) and a balloon in the future. This would be my highest price offer. It may even be over what they are asking for the property. My second offer would be a lower owner finance offer with maybe interest only payments or a bigger down payment with the seller subordinating and taking second position on the property. I can give him a considerably bigger down payment this way and then monthly payments (principle only) with a balloon payment in the future. Depends what the seller's needs are. The third option would be a low cash offer for the property. I ususally write up a simple LOI spelling out the general details of each option. See which option the seller likes and make any tweaks that need to be done and sign an agreement. Good luck!
