First Time Investment Property
I have setled on an area and a home I wish to purchase in NJ. Good NOI, Nice Cap Rate Values, Very good cost per square ft. value when compared to other homes in the area. Concern is the what do I offer for the home. The market analysis and cost listed are about equal. Not to many great upgrades to the home, what figure do I start with? Any help is appreciated.
Since you mention cap rate, do we assume that you are planning to purchase this property to hold as a rental?
If so, how do you plan to finance it? If you are paying all cash, what will be your return on investment? If you are using financing, what percentage of your NOI will be needed to service your debt?
I could tell you to start by offering $1, but that is not your real question. I think your real question is at what price does this property cease to be a deal.
The answers to my questions will lead us to an answer to yours.
Everyone has their own thresholds as to what they want out of a property, so many factors influence the process.
To figure out what I offer, i figure the following:
For rentals:
How much overall debt vs overall income per month is the biggest question for me. I know it seems overly simplified, but I try to use the worst scenarios as my numbers for profits.
I figure out what my profit per month would be based on the selling price and know what it would be for each $2,500 interval up to the sellers price.
I turned down going into debt for 122,000 and only making 200 per month, but I purchased 95,000 property and make $400 a month. When I refinance that property, I'll reappraise, get a HELOC or cash out, and since the rate is 10.16% (yes, its high, but I wanted to get into the prop and other factors involved) I'll still make about $400 a month because I'll get a better rate this time around.
I know a lot of people have spreadsheets and fancy calculations, the 1% (sometimes 2%) rule and expensive software to help them figure this out, but what matters to me is a manageable debt load with a significant increase in monthly income.
If I am comfortable with THOSE numbers, then I make a purchase.
Good Luck in your endeavours.