You did the formula correct, so yes, that would be your max offer price on that property based on those numbers your calculated profit is not correct unless you meant gross.

The ratio comes out to be around 29% of gross rents.

Of course I expect about half of my annual gross rent will go toward property expenses but I think for the majority I will see more profit than loss.

@Luke Ward - once I quit buying properties, I started setting aside 5% of gross rents for maintenance reserves... just in time to incur a completely out-of-the-blue foundation repair.

You are not going to be able to enforce any transaction for any asset just because you took gross advantage of any buyer.

@Joe LegionsWelcome check out the freeBigger Pockets Real Estate Guidehttp://www.biggerpockets.com/real-estate-investingExpenses should run 35% of gross income for a property this size.

I am holding about 10% of Gross rent out each month to account for some of the issues you mention ($995 rent = $100 /month)I actually sweep $447 into my "purchase" fund,and leave $100/mo in my operating account that also holds the deposits and pet fees.I replaced the toilet, sinks, faucets, plumbing stops, gas stops, full new a/c system (i'm in TX), and rebuilt all parts on HW heater since it was in good shape as well as replaced the ceiling fans.

.$36,000 purchase price$17,500 in rehab$1,000 property tax per year$1,000 insurance per year$1,000 maintenance per year(These are rough estimates)$800 per month rent$9,600 gross rent per year$6,600 net rent$6,600/$53,500 = 12.3%We've found that the difference in rent between our homes and the more expensive homes is not justified by the higher rent.

(All #'s below are calculated at $500/mo)Gross Income : $44,928Total Expenses : $17,153NOI : $27,793Cap Rate : 9.3%The surrounding area is primarily SF with a couple of Duplexes thrown in for fun.

Unless you have a crystal ball, why not just assume that inflation in gross income will track inflation in expenses/capex, and long-term your ROI and cash-flow numbers will be about the same as the short term.