Putting a value on a property? How to determine how much you should pay?

:help I’m working on getting into multi unit properties, duplex, triplex, and quads to get started . Besides CAP rate, how do you fellas figure out how much you should pay for a property? Is there a formula you go by? About a month or so ago I was listening to some sound clip seminars on this site and I thought I heard the guys say that you take the total annual rents and multiply by 10… and you shouldn’t pay over that price…??? Does that sound correct?

All of your input would help greatly.

Cheers :beer

At this level of investing, the only thing that matters is the comps and the rents.

What are the rents? What are the comps?

Rent/Price ratios can certainly help you qualify properties.

For example, some investors won’t buy anything where the market rents don’t equal 2% of the value of the property. That would translate to a rent/price ratio of ‘2 percent’.

Once you’ve located a neighborhood (farm) where the rent/price ratios make sense, then it’s just a matter of finding a property you want to invest in.

At this level and size of investing, buyers and sellers are not using GRM’s and CAPS to determine value.

Sellers base value on the comps, not the rents they are getting.

So, it really comes down to what you’re trying to accomplish…

Are you investing for appreciation? Or are you investing for cash flow?

These are really two different objectives and goals, and determine ‘where’ and ‘why’ you’re investing in a certain property, or not.

So, tell us what your investing goal is, and then let’s talk about how to accomplish ‘that.’

The price range and areas I have been looking at that I can afford to get into, I would be investing for cash flow.

The areas Iv been searching don’t appreciate much at all. They are lower income areas.

Duplex-quads range from pretty much $80,000-$200,000 and rents range from about $450-$700 a month.

Once I do get started, my goal is to buy at lease one property a year. Within the next 10 years I would like to not have my day job and be able to focus on the better things in life.


OK, cash flow. Got it.

You already know the market. So, it’s just a matter of finding and negotiating with motivated sellers.

I would learn how to ‘yellow pad’ a seller, showing him what he’d net if he sold through a realtor, made repairs, and continued making payments, etc., until the house sold.

This will knock at least 10% off the asking price, with no sweat. More importantly, you should always ask every seller to finance your purchase.

And couch each element/request in your offer as a benefit to the seller.

Ask for more than you want, in order to get what you need, and before anything else, spend some time finding out what the seller wants, try to give it to him, and then take everything else.

If you learn to negotiate seller financing, you’ll also find that it doesn’t always take big down payments to get financing from a seller. This is where ‘subject to’ financing really is powerful. If you can be creative, you can invest profitably and conservatively in more than one property a year.

Go get any books by Robert Allen (especially his ‘no down payment’ formula books). His ideas will help you successfully leverage both seller financing, and conventional financing, without down payments, to the hilt.


Your input is always great. Thank you. I will go pick up one of his books. Do you know of any websites I could find some good info on Seller financing?

What should I expect a deal to look like with seller financing? What type of things should I ask for?

The properties I have been looking at are $100,000-$150,000, duplexs-quads

You can buy properties all day long at a 10% cap rate…although I would not personally do so…because you would be paying too much for that property. Regarding owner financing, this is a product of your relationship built with the seller, his motivation to sell, and your ability to negotiate.

My last (small commercial property) offer has been unfolding as follows:

Asking: $109k
Offer: $90k with seller financing $81k at 4% for 60 months (only reason so short of a time is that the property will support this payoff out of current cash flow).
His Counter: $100k with 10% down and seller financing at 4% at 60 months.

I’ve requested the final counter in a signed contract with 40 days to inspect property and obtain new leases with the help of seller…

In this case, all parties are benefiting. Take a look at your seller’s situation, how long he has been attempting to sell, the property cash flow and expenses, then make an offer…you might be surprised what the answer is…just say ‘Would you consider…’

Keep asking ‘would you consider…’ until he says yes!

Hope this helps.