What is the formula for calculating monthly cash flow to ensure that a potential buyer is getting a good deal for a buy and hold property?

2 Replies

Hi Bigger Pockets Community,

I am a new investor and I have been working on coming up with a figure to present to a seller who is trying to sell their condo. I am wholesaling this deal. The seller gave me their desired asking price but it is higher than the figure I received when I used the formula 70% of ARV minus repairs (no repairs have been given to me from seller) minus my fee. The potential buyer has a set monthly amount they need to receive in order for the deal to be a good one. Knowing this information, what is the formula that I use for a buy and hold property that is being used by an investor as a cash flow deal if I know the desired monthly cash flow amount?Also, how is this formula affected by an existing mortgage?I want to make sure that the figure I come up with is hitting the target cash flow amount desired by the buyer before I present it to the seller.

Ask the seller how he came up with the asking figure?

If it is unrealistic then you are wasting your time.

Whart are comps going for? 

What are rents going for in the same building?

Why would you think the seller needs to give you a figure for fix up?

Ask some rehabbers in the area for a approximate $ per sq ft to do moderate rehab.

It could be $25-$50+ a sq ft.

Worry less about a formula and more on research

for your market.

Do you know a real estate agent that specializes in Condos in that zip code?

Ask them what buyers are looking for in that area.

Go look at rentals and for sale units in the area so you know what the market is demanding.

Test the market. Run an ad in Craigslist  and see if you can get what you need in order

to put a deal together.

Very rough analysis:

Gross Rent Amount / 2 = Monthly Cash Flow Assuming No Mortgage

If there's a mortgage, subtract the monthly payment (P&I) from the result above to get the monthly cash flow.

If that analysis works out well, the deal is good enough to pass  to the buyer to let him plug in his own numbers and come to his own conclusion.

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