I know of a property and am trying to determine a "ceiling" for the most that should be offered for the property. This is a question about process and analyzing deals.
I know of a triplex whose rents total $1,200/month (each $400/month), being sold for $85,000. Tenants pay all bills. Assuming rents are fair, what would you do for your max price?
1) This deal meets the 1% rule. Good. [Buy for $85,000]
2) Using the 50% rule ($600 expenses per month), assuming a mortgage of 6% for 30 years (P&I monthly $510), $1,200 - $600 = $600, minus $510, equals $90/month cash flow. This equates to $30/month/door. Brandon talks about the $100/month/door rule he uses (i.e. $300 cash flow on this place), but to get this, the buy price would need to be $50,030. Good. [Buy ceiling of $50,030]
3) The 2% rule is apparently also a good rule of thumb. So the 2% rule states buy for max of $60,000. This would equate to $80/month/door. Good. [Buy ceiling of $60,000].
Essentially, do you use the lowest rule and walk at anything over, or do you go about this differently? I know about Cap rates, and that calculation may be the best standard, but I'm just getting started and think these other rules should make for a good deal as well.
Thanks!
