A four-plex goes on the market for $200,000. You offer $150,000. Is that a good deal? Maybe. How did you come up with that offer? For the most part there is really only one question to ask when approaching rental property. Is this property profitable? If the answer is yes it's a good deal. Of course if the answer is no it's a bad deal. Goes without saying right? Wrong! Many times unprepared Real Estate investors purchase property for all the wrong reasons. Don't get me wrong. I can see how it would be tempting to by an investment property based on location. As a matter of fact you should target areas where houses appreciate at an average to above average rate. However. The price the seller wants for the property has absolutely nothing to do with what you will pay for it. Profitability is the key. Your offer should be based solely on your determined value of the property.
Every investor has his own specialty and strategy. Currently my concentration is on multiunits so when I'm determining the value of a multiunit property my biggest initial concern is annual gross rental income. You have to make sure this number is accurate because it is the bases of all else that follows in determining the value.