Most buyers start with the asking price and see what it returns. Try it the other way round: start with the return you need and find the most you can pay.
Your maximum offer is the highest price at which a rental still meets the return you set for yourself. Above it, the deal falls short of your own standard. Below it, you have room.
That makes it a negotiating ceiling you can know before you make an offer, not after. It does not tell you what the seller will accept. It tells you where you should walk away.
The usual order is price first: enter the asking price, read the cash-on-cash return, and decide if it feels good enough. The weakness is that the asking price quietly sets your expectation.
Working backward flips it. You choose the return you need, and the price falls out of the numbers. Two things move together as the price changes, which is why a quick guess is hard: a lower price shrinks the loan payment and the cash you put in.
Step 1: Fix what does not depend on the price: rent, vacancy, operating expenses, loan rate and term, down-payment percentage and closing costs.
Step 2: Choose your targets. The example below uses a 10% cash-on-cash return and a 1.3 DSCR as illustrations, not recommendations. Pick your own.
Step 3: Find the highest price at which both targets still hold. By hand that means trying prices until the target just holds. A calculator does the same search for you in a moment.
If the two targets point to different prices, the lower price wins, because the deal has to meet both.
The same Deal A from our DSCR guide: asking price $250,000, rent $2,500 a month, 20% down, a 30-year loan at 7%, $5,000 in closing costs, 5% vacancy, $3,600 a year in property taxes, $1,440 a year in insurance, 8% management and 8% maintenance. Targets: 10% cash-on-cash and a 1.3 DSCR.
| At the asking price | At the maximum offer | |
|---|---|---|
| Purchase price | $250,000 | $216,528 |
| Down payment (20%) | $50,000 | $43,306 |
| Loan payment (P&I) / mo | $1,331 | $1,152 |
| Cash invested | $55,000 | $48,306 |
| Cash flow / mo | $224 | $403 |
| Cash-on-cash | 4.9% | 10.0% |
| DSCR | 1.17 | 1.35 |
The asking price is $33,472 above the maximum offer. At $250,000 the deal returns 4.9% and covers its loan payments 1.17 times. At $216,528 it returns exactly the 10% target.
Notice which target set the ceiling. A 1.3 DSCR alone would allow about $224,739, but that price would return less than 10%. Cash-on-cash is the stricter target here, so it decides.
One simplification to know about: the property tax and insurance stay at the amounts entered ($3,600 and $1,440 a year), even though a lower price would often mean a lower tax bill. Real numbers will differ, so enter the ones that fit the property.
Treat the maximum offer as a ceiling, not an opening bid. If your first offer is well under it, you have room to negotiate up. If the seller will not come down to it, you can walk away knowing why.
Be careful with a price that is far below the maximum. A bargain on paper sometimes has a reason, such as deferred repairs, so check the property before you celebrate. If you also run Deal Ledger's comps lookup and its estimated value comes in lower than your return-based number, the tool uses that lower figure as the ceiling, since you would not want to pay more than comparable properties suggest.
The highest purchase price at which the deal still meets the return you set for yourself, such as a target cash-on-cash return and a minimum DSCR. Pay more than that and the deal falls short of your own standard.
Fix the rent, expenses, loan terms and closing costs, choose your target return, then find the highest price at which the deal still meets it. Because price changes the down payment and the loan, this is usually found by trying prices until the target just holds, which is what a calculator does for you.
The 70 percent rule is a flipper's shortcut: 70 percent of the after-repair value minus repair costs. A return-based maximum offer starts from the rental income and your target return instead of from a resale value.
The lower price wins, because the deal has to meet both. In the example on this page the cash-on-cash target is the stricter one and sets the ceiling.
Not by itself. A price far below the maximum may mean the seller knows about a problem. Use the maximum offer as a ceiling for negotiating, then check why the price is where it is.
Free to try. Enter your rent, expenses and loan terms, set your target return, and get a suggested maximum offer in seconds.