Having said that, I'd bet good money that your agent isn't arguing with the numbers because he understands this issue in great detail and he's subtracting vacancies and capital expenses.

Jarnal,If you do the financial analysis and assume that 50% of the gross rents will go to your expenses which include ALL expenses (taxes, insurance, management, repairs, capital expenses, advertising, legal, etc), the balance 50% is left over for debt service and your profit.Most investors want at least $100 per door in positive cash flow (assuming your strategy is based on cash flow only) and thus, if you subtract that out from the operating expenses, you know how much you have left for debt service.From there, find out what rate you can get a loan at and you can then discover the max loan amount you could have on that specific property.Hope that helps.

But I'd start at 70% of ARV and subtract 20k (subject to interior inspection) and see what they say.

But from that you would subtract below the line the capex needed and also the present value of the rent loss and lease up costs

Troy... one way that I teach my clients is the 70% rule... only I recommend they use 60%.Let me explain...Somewhere along the line a guru, I don't know who, was teaching that the best way to determine your offer price was to take 70% of the After Repair Value (for a disucssion of determining ARV I posted a blog last Sunday related to the subject) and the subtract the repair estimate from that 70% and that would be your offer price.

If I can get a price that will satisfy the 50% rule and still cash flow, do I need to subtract additional money for repair costs?

(more than one if you can)This is a time where it pays to be a bit pessimistic about the value, don't inflate it in your own mind just to make your deal work on paper.Figure 70% of your CURRENT ARV, and subtract the RETAIL cost to put the property in shape.

Subtract your P&I payment from NOI and you get pre-tax cash flow.

AND, you'll pay "depreciation recapture tax" on the amount of gain up to the amount of depreciation you took (or should have taken.)You can carry forward those passive losses you can't take, and then subtract them off the gain when you sell.The losses can protect the rental income.Really, if you have a good deal, you should have very little passive loss.

Subtract off $100 for the desired cash flow and you're left with $250 as the max payment.