Formula for offer price?

6 Replies

I read Ken McElroy's book the ABC's of REI and he wrote about how he figures the value of a property. There was an equation he uses but I can't remember what it is and I don't have his book. Does anyone know that equation, or another way to figure what a property is really worth?

It depends entirely on the type of property and the market in the area.

A SFH is worth what ever a home buyer is willing to pay and a multi unit investment rental property is valued based on the prevailing cap rates in the area.

Investors offer what they are willing to pay based on what they need from the property regardless of the asking price.

I understand the SFR's I'm talking commercial RE. There are a few commercial deals in the Jacksonville, NC area that may be really good as add value opportunities. But I can't remember that formula.

@Paul Argenbright Commercial RE is valued based on Capitalization Rate. To quote Frank Gallinelli's book What Every real Estate Investor Needs to Know about Cash Flow:

Cap Rate is the rate at which you discount future income to determine its present value.

Cap rate=NOI/ Value

What type of properties are you looking at in jville and what's their cap rate?

A 15 CAP seems very high unless it is a "D" property. Have you looked at the P&L to verify the rents, expenses and NOI? I would be glad to help you with the valuation. Just send me a PM.

@Paul Argenbright I think I'm with @Doug Johnson in that a 15-cap reeks of "too good to be true". I'd be asking about major cap-ex expenses like the age of the roof. And it's already been said, see if you can get a T12 that documents collected rents and actual expenses. I've seen "could rent for" a few times but when you look at *collected* rents it's a far different story.