How Much Should You Offer on an Investment Property?

Start from returns, not from a discount

Pick your required return first: a target cap rate, a minimum DSCR, or a minimum cash-on-cash. Then solve for the price that produces it given the NOI you can defend.

Two constraints usually compete. The return-driven ceiling is NOI divided by your target cap rate. The financing-driven ceiling is the price whose loan still clears your lender's DSCR requirement. Your maximum offer is the lower of the two.

Adjust for what the property needs

Deduct planned capital work from your ceiling. If the building needs $40,000 of immediate work, that capital competes directly with the purchase price.

Deduct the cost of any lease-up or turnover time as well. Vacant months are real money.

Negotiating from a number

Present your assumptions rather than only your price. Tax bills, insurance quotes and rental comps are far more persuasive than an unexplained lower offer.

Terms can bridge a price gap: closing timing, conditions, deposit structure and holdbacks all carry value. Price is one variable of several.

When to walk away

Walk when closing the gap requires assumptions you cannot support: rents above verified comps, expenses below documented history, or growth that has to arrive on schedule.

A pass is a decision, not a failure. The cost of a bad acquisition is measured in years.

Frequently asked