I’ve seen a property that meets all my criteria and I want to buy and hold not flip. Property is on the market for $99,000. I want to offer 60,000 (which is minus 30 percent discount and repairs) Should I be using the ARV or the Cap Rate formula for buy an hold? Formula and example of both are below for all the newbies like myself. I got these calculations off the internet so if they are not right please let me know.

Capitalization Rate Formula

Formula: Annual rental income (income - expenses, not including mortgage)/ the purchase price = capitalization rate.

Example: If you purchase an investment property for $120,000 and it can generate $1,000 per month after operating expenses (not including the mortgage), then the cap rate would be $12,000 divided by $120,000, or 10 percent. This means it will take approximately 10 years to recoup the property value in net rental income if the rent stays the same (10 years at 10 percent = 100 percent). If the cap rate were 5 percent, it would take 20 years (20 years at 5 percent = 100 percent) to recoup the value.

After Repair Value Formula

Formula: The purchase price should be no more than 65 percent of the after-repair value of the property.

Alternate calculation method: 75 percent of your after-repair value - repair expenses = purchase price.

Example: You see an older home on the market that is visibly rundown and in a state of disrepair. Asking price is $160,000 “as is.” After you assess the damage, you estimate it will require $25,000 in new materials to get it in good shape. Homes of the same size in the neighborhood have been selling for $220,000 in “move-in, condition.” You would need to buy the home for $140,000 to make it a worthwhile investment. (75 percent of $220,000 = $165,000. $165,000 minus $25,000 = $140,000.)