Is there a formula for MAO based on rental income not ARV?

Question

Ive been on the fence for over a year and Im finally pressing forward to my first deal. I believe i can move this property but i want to price it right.There havent been too many sold properties in the area for a few yrs. However,the rents for the area are pretty decent.So my target would be buy and hold investors or section 8 landlords.Is there a formula using possible rental income to come up with win-win-win price for the seller,buyer and myself?

Account Closed · Answer

depends what you want each month in terms of cashflow...most here believe in the 50% rule and the 100/door profit per month...this will help you figure out your maximum monthly payment on a mortgage...then run that with a financial calculator to know your max offer...assume 100% financing so you're not paying for cashflow in the form of a downpayment...if you don't know what loan terms a bank would offer you, 20 year amortization and 7% interest rate would be a good starting point for calculations....

so, if you have a property that you think will rent for 700/month, divide that by 2 for the 50% rule, and then subtract out your 100 dollar profit..the rest is your monthly payment....so....
700/2 =350    350-100=250

using a financial calculator, for a 250/month payment at 7% interest, and 20 year term, your max offer would be 32,245....hope that helps