: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?
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.
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:
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!