THis question is going to be very vague, however, a vague answer I guess is what I’m looking for.
I live in a city in Canada which it’s economy is very dependant upon the North American auto industry (economy currently similar to Detroit’s), so as you can imagine, my city is getting hammered right now. Although, this is a terrrible time, I see potential to buy very low while obtaining very attractive financing rates.
I’m am currently looking at 2-4 unit multi-family properties.
Question: Hypothetically speaking, assuming the property doesn’t need any work, what percentage of ARV would be the maximum offer you would make to the seller considering the/a horrible real estate market?
bdub is right. Gross monthly rents / .02 would be a good screening tool for max purchase price. In a really crappy market, I would also try to buy at a max of 50% to 60% of the market value. That shouldn’t be too hard to do in a dead market. The worse the market, the better the deal has to be!
On another note, I have been looking for a while now and find that most of the 2-4unit multi-family properties listed in my city are all priced at a 9% cap rate and lower even now with the my city’s market at an extreme low. ( I know cap rate shouldn’t be the only tool used but I’m using it as an example)
I obviously know that there are deals out there, but it is a bit discouraging seeing properties being listed as if the market was fine.
propertymanager can you explain your formula a little bit more? are you using this to figure out the purchase price for rehabs or holding and renting? I tried to find your previous posting in a forum search but had no luck.
I have learned a lot from your posts and really appreciate your contributions. Being new to the prospects of rentals, I am curious where the .02 comes from. I have searched the forums on it, but obviously that number (in various combinations) comes with many results.
Is it based on some debt coverage ratio? Could you please break it down a bit more?