Basic Deal Analysis Question

[Carlos Arjona]

Hello BP Team!

I’m trying to get a better sense regarding the way I’m analyzing deals and how much I should be offering for different properties. I’m a new investor so I’m using very basic rules of thumb like the 2% rule for rents and the 50% rule for expenses when doing my initial analysis and I’d like to know if I’m being overly conservative and pricing myself out of deals.

So if I see a duplex for sale and the asking price is $150k, using the 2% rule tells me I would need to receive $3k ($1.5k per unit) per month to properly cash flow the property.

Now, let's say actual rents per unit are $850 per month bringing that to a total of $1.7k per month. Using the 50% rule for expenses projects an NOI of $850 per month and $10.2k per year; if my desired cap rate is 10% then the maximum offering price should be no more than $102k.

Am I doing this correctly?

Using the above example as a point of reference tells me that at $150k and with total rents gross income of $1.7k per month the duplex is overpriced.

Like I said, I’m a new investor and I know this is very basic, but bear with me. Your help and advice is greatly appreciated.

Thanks!