Pricing

2 Replies

Hi,

I just read Brandon Turners, " How to buy a small multifamily property: A step by step case study.  the 5 minute analysis is cool but I do have one question. How do you come up with the "ideal price" from your "list price"?

The ideal price is what you want to buy it for.  Some would say that the only  way to get a steal is to be willing to make an embarrassing offer. That will sometime bring the seller into reality. Sellers usually have too high an opinion of what they are selling. The investor needs to shake up the seller a little.

For example we used to buy HUD houses and it would take several low ball offers before they would lower the price.

Make offers that work with you numbers and it doesn't matter what the seller wants.

One’s ‘ideal’ price may vary from investor to investor and is predicated your expected return on capital. 

For example, ‘ideally' I'd like to get a 20% IRR (hard, but possible especially with a repositioning), so I back into a price by plugging in the income, vacancy, and realistic expenses, down payment, mortgage details, etc. … then I play with the price until I hit my ‘ideal' IRR. That derived price is my strike price and I'll offer little below to allow negotiating room.

You first need to start by identifying what your goal is. Then mathematically back into your offer price.  

I use the ccim forecast templates built by gary tharp to run my analysis. He offers them free for download. http://www.garytharp.com/forms/  If you have an iPhone, you could use TheAnalyst app, which is built on the same foundation ... it's my favorite number crunching app ;-)  http://cretm.com/theanalyst/

I have no affliction with Gary (other then I'm a ccim candidate) nor the App...I just think it's cool. 

Hope that helps. 

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