2 family/Ivestment Homes - Valuation Methods

I am trying to understand how to value a 2 family house. I have read that the income from a renting out a 2 family house should cover expenses like mortage, insurance and taxes. If you put down 20% should you calculate the full purchase price disregarding the the down payment. so that if you bought a 100,000 dollar house you would figure the finanacing for the full $100,000. If the mortgage payments are $550 per month, the insurance and taxes are another $450 per month than the rents charged should be equal to or greater than 1,000 dollars per month. In actuality you would back into that number from the rents charged at the time of purchase.

Another thing I have heard is that the real estate decline will have hit bottom when the rents charged for a house in the area are equal to the expense of owning. Pretty much the same thing as above. I have also read that the historical average price of housing in normal markets is to multiply the annual rent by 15. That will give you a good idea what the price of the house should be. In my example above the house renting out 2 units for a total of $1,000 per month would be $12,000 x 15 = $180,000, radically different values. 

Anyone have any advice for valuing investment property? That is not based on what the market will bear. We are very specific about where we want to buy and are not finding any foreclosures in our area. so that is unfortunately not an option. I look forward to reading any and all comments.

Thank you.

 
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July 22 2009 - Coral Ridge
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