Most people decide what to offer by starting at the asking price and knocking a little off. Five percent feels reasonable. Ten feels aggressive. Neither number has anything to do with whether the house actually works as a rental.
There is a better way to do it: start from the rent and your costs, and work backwards to the highest price the deal can carry. That price is your max offer. Everything above it is the seller's problem, not yours.
The asking price is the seller's number
A listing price is built from what nearby homes sold for, what the seller owes, and what they hope to get. It is a perfectly good number for someone who wants to live in the house. It is not built from rent, taxes, insurance and a mortgage, so there is no reason to expect it to work for a landlord. Sometimes it does. Usually it doesn't, and you find out only by running the numbers the other way around.
One house, four prices
Take an ordinary listing: $300,000, renting for $2,400 a month. We ran it through REIzer with 25% down at 6.75% and standard costs: 5% vacancy, 8% management, 5% each for repairs and replacements, and taxes and insurance for a $300,000 house. We kept those two at the asking-price level at every price below, to stay on the careful side.
| Price | Monthly cash flow | REIzer score |
|---|---|---|
| $300,000 (asking) | −$15 | 44 · Risky |
| $297,000 | $0 | 44 · Risky |
| $247,000 | +$243 | 70 · Solid |
| $215,000 | +$399 | 87 · Strong |
Same house, same rent, same costs. The only thing that changes is the price, and it changes everything.
Three prices, three different deals
Each of those lower prices is a different answer to the question "what do I want from this house?"
$297,000 is where it stops losing money. That is break-even, not a deal. Cash flow is zero, and any empty month or repair comes straight out of your pocket. If this is the best the seller will do, you are buying a house that pays its own mortgage and hoping it goes up in value.
$247,000 is where a lender relaxes. At this price the rent covers the mortgage with a 20% cushion, a debt coverage ratio of 1.20, which is what most rental lenders look for (the DSCR page explains the ratio). The deal makes $243 a month, and it survives a one-point rate rise or 20% higher expenses without going negative.
$215,000 is where your cash earns 8%. The deal makes $399 a month on about $60,000 invested. It stays positive through every stress test REIzer runs, including a recession scenario that cuts rent 8%, adds vacancy, raises the rate a point and lifts costs, all at once.
None of these is the "right" answer. They are three different goals, and you get to pick which one you are buying for. The point is to pick it before you talk to the seller, not after.
Your max offer is where you walk away
The number you land on is not the price you open with. It is the price above which you say no.
That makes negotiating much simpler. You can open lower, move up if you need to, and never have to decide in the moment whether one more concession is fine, because you already know where the line is. If the seller will not come down to it, the deal was never going to work for you, and walking away is the right result, not a failure.
And if you would rather keep negotiating, the other levers are right there: a bigger down payment, a lower rate, a seller credit toward closing costs. Each one moves your max offer, and it is worth seeing by how much before you ask for it.
What if nothing gets close?
In a lot of markets right now, the price that earns a solid return is well below what sellers are asking, like the $85,000 gap on this house between asking and an 8% return. That is not a sign you are doing the math wrong. It is the math telling you that at today's rates, this particular house is priced for someone who wants to live in it.
The investors who do well in markets like that are not the ones who stretch their numbers to fit the listing. They are the ones who look at a lot of listings, know their number for each one in a couple of minutes, and make offers only where the numbers can meet.
REIzer's rental analyzer solves the max offer for every deal you run: the highest price that still meets your cash flow, lender and return targets, and which of them is the one holding the price down. The MAO solver docs explain exactly how it works.