Imagine you get an apartment building deal from one of your commercial real estate brokers. Now what?
If you’re anything like me when I first got started, I didn’t look forward to analyzing the deal because I knew it would take me hours. I found that if you don’t get back to the broker within a few days with some feedback, they’ll stop taking you seriously and may stop feeding you deals.
Instead, what we need to do is to quickly analyze the deal to answer the question “what is the most I would pay for this deal, and why?” and get back to the broker as quickly as possible.
This strengthens your relationship with the broker (because of the quick response time) and gets the negotiation process going (“the asking price won’t work for me, but this would, and here’s why. How flexible is the buyer with their asking price?”).
To quickly calculate the most we can pay for a deal, we use the “50% Rule”. The 50% Rule says that as a rule of thumb, we assume that the expenses are 50% of the effective gross income, regardless of what the seller reports (unless the percentage is higher, in which case we’ll use that number).
Please watch the video below where I use the 50% Rule with the Syndicated Deal Analyzer to analyze a multi-family deal as it comes in.
Hope you found the 50% Rule useful!
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