Formula to Calculate Offers for Buy, Fix & Hold Investors

Here is an example of how to calculate an offer for a buy, fix and hold investor.

The first thing we need to calculate an investment property is the Net Operating Income (NOI). The NOI is determined by taking the gross rental income and subtracting all of the expenses from it.

Here is a way to calculate the NOI. Please note that different investors subtract different things.

Gross rent

- management (10%)
- maintenance (5%, if applicable)
- taxes (use actual numbers)
- insurance (varies, use actual numbers)
- utilities (can be from 0-something, if applicable)
- vacancy rate (varies from 0-5%, if applicable)

= NOI

Once you have an annual NOI for a property you need to divide it by the investors desired Cap rate. Let's say we have an investor who is seeking a 15% Cap rate.

So the formula would be:

NOI / .15 (15% Cap rate) = All in purchase price

so if our annual NOI was $15,000.00 the formula would look like this:

$15,000.00 / .15 = $100,000.00

Now to arrive at our maximum offer amount (MOA) we will need to subtract from our all in purchase price all of the investors costs, rehab costs and our desired profit and costs (in the case of a double close).

So lets assume our investor has $3,000.00 in closing costs and $5,000.00 in rehab costs. Let's also assume this is an assignment and we want a $5,000.00 assignment fee. Let's assume there are no other costs associated with this deal.

$100,000.00 = all in purchase price

- $3,000.00 - closing costs
- $5,000.00 - rehab
- $5,000.00 - assignment fee

= $ 87,000.00 - maximum offer amount (MOA)

To ensure our investor gets a 15% return on his cash investment we could afford to pay up to a MOA of $87,000.00 in this example.

I know there are many other ways to calculate offers for buy, fix and hold investors please feel free to add your thoughts and ideas to mine.

Hope that helps.