An example of the Topic above should be made. If a SFH is selling at $150,000.00, how would you know what price to offer?

Don't base your offer on what the seller is asking. It's very typical for sellers to ask more than the property is worth, especially more than the property is worth to an investor, because of their emotional involvement in the property -- especially if it was their home for a long time.

Instead, you need to figure out what the market value of the property would be after you have done any repairs, then how much you would have to discount it to sell it quickly. From that second figure (the fire sale price) subtract all your costs (fix-up, closing) and the profit you want to make, and that's how much you offer.

This is a great tip to determine the price you would want to offer for a property. It always seems confusing coming up with the right price because you don't want to offer more than you should.

We all want a good deal. Thanks again.

How do you get the fire sale price? Is it like 20% from the market value? Is the market value come out from appraisal district or sites like Zillow.com. How do you exactly find the market value after repair?! Any sources..

There is no hard and fast formula for calculating the fire sale price. You have to study your market and figure it out. In a hot market with limited inventory, your fire sale price could be just a small percentage below the fair market value (FMV). In a slow market with plenty of inventory, your fire sale price will be significantly lower.

You need to study your market and see how long properties are staying on the market and what they are selling for. Look at the properties that are selling quickly and see what the sale price is compared to the FMV. That will help you calculate the discount you need to take to reach the fire sale price.

What if the property is commercial and you want to re-zone should the cost to re-zone also be considered?

Calculating prices for commercial property is quite different than for residential (single family and multi-family buildings of up to four units). The primary reason is that you don't have comps with commercial property and the methods you use to calculate value of commercial property are much more complex.

Whether you are investing in residential or commercial, you should factor all of your expenses (including re-zoning) into the equation.

The formula in the article is an good rule of thumb. Unless it's a wholesale property don't forget to include your estimated holding costs. Estimate your days on market (DOM) and don't be overly optimistic in today's environment. If it sells sooner than you budgeted for you made some extra profit.

What type of cash flow standards would you recomend for duplex or small partment buildings(up to 4 units)? Ive heard some people say the bare minimum is having a 15 year loan and there rental income is double all their expenses(debt service, taxes, insurance, repair expense and vacancy contigent)? This seems hard to do in heavily populated areas such as new jersey or philadelphia where homes are more expensive than certain places in the midwest for example. I recently purchased my first duplex and have 30 year mortgage and my positive cash flow is closer to 20% of the rent roll.

The point you make is exactly why we don't recommend specific standards for cash flow other than to say that the property should be profitable. We teach you how to structure profitable deals. Another point to consider is that a smart investor can often take a property and increase its profitability through good management, and that should be considered when evaluating the past performance of a particular piece of real estate. But you have to look at the deal in its entirety and make the decision about whether or not it will work for you yourself and not lock yourself into some arbitrary formula someone else created.

Not a standard formula but is there a bottom line minimum where below a certain profitibility you wouldnt invest because you are setting yourself up for failure. For example if i had a positive cash flow of a couple hundred dollars which technically makes it profitable but am I setting myself up for failure because at some point down the line a heater will break or somehting expensive which woould wipe out a year or two of profits.
My question is not what is the formula that should be used to purchase a property but is there a minimum set of standards that makes property a safer investment and anything below your just wasting time and effort because you may show a profit but eventually it will be erased by large repairs or other unexpected expenses.

How much should you pay for a commercial property if the comps don't jive? Do have any advice?

The short answer to your question is that there is no bottom line minimum on profitability. You have to take the entirety of your circumstances into consideration.

Consider your example: Let's say you have a single family home that's generating $200 a month in positive cash flow. That's $2,400 a year. Something happens and you have a $3,000 repair. Yes, that repair would wipe out your cash flow for the year, but you also profit from tax savings and property appreciation. And what if you didn’t have the repair? Should you give up that $2,400 a year and the other benefits of owning investment property because you might have had an expensive repair?

Now let's say you own 10 single family homes generating $200 a month in positive cash flow. That's $24,000 a year. If one needs a $3,000 repair, you've still got $21,000 a year coming in.

I would be doing you a tremendous disservice to say "if you can’t make $X profit on a property, don’t buy it," because it’s not that simple.

Shane,

It's very difficult to get comps on commercial property because you can rarely find a nearby property that is truly comparable. There are a number of ways to figure out the value of a commercial property. You can get the basic information in the chapter on investing in commercial real estate in Millionaire Real Estate Mentor by Russ Whitney.