How can I figure out how much to bid on a parking space?
If the cash flow information is complete, the valuation can be determined with relative accuracy and precision. Assuming the monthly rent is correct, the annual revenue is $1,600 per year, $250/mo * 12 months - $1,400/year in taxes. Real estate is best valued as a perpetuity where P is the price, i is the income, and r is the rate of interest.  Theoreticians would suggest that the best available rate of interest would be the risk free rate, a 30 year Treasury rate ~3.5%, but the competition can't get these rates, so it is probably unrealistic. Anways, aassuming no expenses, the value of the property is $1,600 / 0.035 at most, $45,714.29. This is the general formula, and it should definitely be adjusted for expenses and a more realistic interest rate. Now, with a better understanding of interest rates and expenses, this will predict the most likely market value; however, it should be known that whatever interest rate is applied to the formula will be the most likely rate of return received from the investment. A Graham-Buffett value investor would suggest using a valuation no less than 15% since to a value investor, there's no point in bidding unless if the profits can be above average, ~7.5%.  With a 15% interest rate and no expenses, $1,600 / .15, is $10,666.67.  On average, it is unlikely that a bid this low will be successful; nevertheless, if multiple bids are placed using this similar methodology, by the law of small numbers, it is likely to hit the lottery on at most one bid. "Scenario 1: Assume that you plan to keep the parking space for the rest of your life and collect the income from the rental. You say these spaces rent for $250 per month and there are fees of $1400 per year. Are there any other costs? Like would you be responsible for the cost of repaving at some point? But assuming that's covered in the $1400, the net profit is 250 x 12 - 1400 = $1600 per year. So now the question becomes, what other things could you invest your money in, and what sort of returns do those give? If, say, you have investments in the stock market that are generating a 10% annual return and you expect that rate of return to continue indefinitely, than if you pay a price that gives you a return of less than 10%, i.e. if you pay more than $16,000, then you would be better off to put the money in the stock market. That is, you should calculate the fair price ""backwards"": What return on investment is acceptable, and then what price would I have to pay to get that ROI? Oh, you should also consider what the ""occupancy rate"" on such parking spaces is. Is there enough demand that you can realistically expect to have it rented out 100% of the time? When one renter leaves, how long does it take to find another? And do you have any information on how often renters fail to pay the rent? I own a house that I rent out and I had two tenants in a row who failed to pay the rent, and the legal process to get them evicted takes months. I don't know what it takes to ""evict"" someone from a parking space. Scenario 2: You expect to collect rent on this space for some period of time, and then someday sell it. In that case, there's an additional piece of information you need: How much can you expect to get for this property when you sell it? This is almost surely highly speculative. But you could certainly look at past pricing trends. If you see that the value of a parking space in your area has been going up by, whatever, say 4% per year for the past 20 years, it's reasonable to plan on the assumption that this trend will continue. If it's been up and down and all over the place, you could be taking a real gamble. If you pay $30,000 for it today and when the time comes to sell the best you can get is $15,000, that's not so good. But if there is some reasonable consistent average rate of growth in value, you can add this to the expected rents. Like if you can expect it to grow in value by $1000 per year, then the return on your investment is the $1600 in rent plus $1000 in capital growth equals $2600. Then again do an ROI calculation based on potential returns from other investments."
I think your math is fine, and also consider insurance costs and the convenience factor of each scenario. Moving a car frequently to avoid parking tickets will become tedious. I'd rather spend an hour renting a car 20 times in a year rather than have to spend 15 minutes moving a car every three days. And if there's no other easy parking, that 15 minutes can take a lot longer. Plus it'll get dirty sitting there, could get vandalized. Yuck. For only 20 days/year, I don't see how owning a car is worth the hassle. I recommend using a credit card that comes with free car rental insurance. If the company that owns the lot is selling them it is doing so because it feels it will make more money doing so.  You need to read carefully what it is you are getting and what the guarantees are from the owner of the property and the parking structure.  I have heard from friends in Chicago that said there are people who will sell spaces they do not own as a scam.  There are also companies that declare bankruptcy and go out of business after signing long term leases for their spots.  They sell the lot to another company(which they have an interest in) and all the leases that they sold are now void so they can resell the spots.  Because of this if I were going to invest in a parking space, I would make sure: The company making the offer is reputable and solvent Check for plans for major construction/demolition nearby that would impact your short and long term prospects for rent. Full time Rental would Recoup my investment in less than 5 years.  Preferably 3 years.  The risk on this is too high for me with out that kind of return. I believe @Dilip addressed your question alread, I am going to focus on your second question: What are the criteria one should use for estimating the worth of the   situation? The criteria are:  I hope this helps. No, this is misbehavior of sales software that tries to automatically find the price point which maximizes profit. There have been much worse examples. Ignore it. The robot will eventually see that no sales occurred and try a more reasonable price. The quant aspect '''''. This is the kind of math I was wondering if it existed, but now it sounds like it is much more  complex in reality then optimizing by evaluating different cost of capital. Thank you for sharing "I read a really good tract that my credit union gave me years ago written by a former car salesman about negotiation tactics with car dealers. Wish I could find it again, but I remember a few of the main points.  1) Never negotiate based on the monthly payment amount. Car salesmen love to get you into thinking about the monthly loan payment and often start out by asking what you can afford for a payment. They know that they can essentially charge you whatever they want for the car and make the payments hit your budget by tweaking the loan terms (length, down payment, etc.)  2) (New cars only) Don't negotiate on the price directly. It is extremely hard to compare prices between dealerships because it is very hard to find exactly the same combination of options. Instead negotiate the markup amount over dealer invoice.  3) Negotiate one thing at a time A favorite shell game of car dealers is to get you to negotiate the car price, trade-in price, and financing all at one time. Unless you are a rain-man mathematical genius, don't do it. Doing this makes it easy for them to make concessions on one thing and take them right back somewhere else. (Minus $500 on the new car, plus $200 through an extra half point on financing, etc).  4) Handling the Trade-In  5) 99.9999% of the time the ""I forgot to mention"" extra items are a ripoff They make huge bonuses for selling this extremely overpriced junk you don't need.    6) Scrutinize everything on the sticker price I've seen car dealers have the balls to add a line item for ""Marketing Costs"" at around $500, then claim with a straight face that unlike OTHER dealers they are just being upfront about their expenses instead of hiding them in the price of the car. Pure bunk. If you negotiate based on an offset from the invoice instead of sticker price it helps you avoid all this nonsense since the manufacturer most assuredly did not include ""Marketing costs"" on the dealer invoice. 7) Call Around before closing the deal Car dealers can be a little cranky about this, but they often have an ""Internet sales person"" assigned to handle this type of deal. Once you know what you want, but before you buy, get the model number and all the codes for the options then call 2-3 dealers and try to get a quote over the phone or e-mail on that exact car. Again, get the quote in terms of markup from dealer invoice price, not sticker price. Going through the Internet sales guy doesn't at all mean you have to buy on the Internet, I still suggest going down to the dealership with the best price and test driving the car in person. The Internet guy is just a sales guy like all the rest of them and will be happy to meet with you and talk through the deal in-person. Update: After recently going through this process again and talking to a bunch of dealers, I have a few things to add: 7a) The price posted on the Internet is often the dealer's bottom line number. Because of sites like AutoTrader and other car marketplaces that let you shop the car across dealerships, they have a lot of incentive to put their rock-bottom prices online where they know people aggressively comparison shop. 7b) Get the price of the car using the stock number from multiple sources (Autotrader, dealer web site, eBay Motors, etc.) and find the lowest price advertised. Then either print or take a screenshot of that price. Dealers sometimes change their prices (up or down) between the time you see it online and when you get to the dealership. I just bought a car where the price went up $1,000 overnight. The sales guy brought up the website and tried to convince me that I was confused. I just pulled up the screenshot on my iPhone and he stopped arguing. I'm not certain, but I got the feeling that there is some kind of bait-switch law that says if you can prove they posted a price they have to honor it. In at least two dealerships they got very contrite and backed away slowly from their bargaining position when I offered proof that they had posted the car at a lower price. 8) The sales guy has ultimate authority on the deal and doesn't need approval Inevitably they will leave the room to ""run the deal by my boss/financing guy/mom"" This is just a game and negotiating trick to serve two purposes:  - To keep you in the dealership longer not shopping at competitors.  - So they can good-cop/bad-cop you in the negotiations on price. That is, insult your offer without making you upset at the guy in front of you.  - To make it harder for you to walk out of the negotiation and compromise more readily.  Let me clarify that last point. They are using a psychological sales trick to make you feel like an ass for wasting the guy's time if you walk out on the deal after sitting in his office all afternoon, especially since he gave you free coffee and sodas. Also, if you have personally invested a lot of time in the deal so far, it makes you feel like you wasted your own time if you don't cross the goal line. As soon as one side of a negotiation forfeits the option to walk away from the deal, the power shifts significantly to the other side. Bottom line: Don't feel guilty about walking out if you can't get the deal you want. Remember, the sales guy is the one that dragged this thing out by playing hide-and-seek with you all day. He wasted your time, not the reverse." "Do some homework to determine what is really a fair price for the house.  Zillow helps.  County tax records help, including last sale price and mortgage, if any (yes, it's public).  Start at the low end of fair. Don't rely on the Realtor.  He gets paid only if a sale occurs, and he's already coaxing you closer to a paycheck.  He might be right with the numbers, though, so check for yourself. When you get within a thousand or two of acceptance, ""shut up"".  I don't mean that in a rude way.  A negotiating class I took taught me how effective silence can be, at the right time.  The other side knows you're close and the highest you've offered.  If they would be willing to find a way to come down to that, this is the time.  The awkward silence is surprisingly effective." If an offered price is below what people are willing to sell for, it is simply ignored. (What happens if I offer to buy lots of cars as long as I only have to pay $2 each? Same thing.) I don't believe you would be able to with only Net Sales and COGS.  Are you talking about trying to estimate them?  Because then I could probably come up with an idea based on industry averages, etc.  I think you would need to know the average days outstanding, inventory turnover and the terms they're getting from their vendors to calculate actuals.  There may be other ways to solve the problem you're asking but thats my thoughts on it. You're realizing the perils of using a DCF analysis.  At best, you can use them to get a range of possible values and use them as a heuristic, but you'll probably find it difficult to generate a realistic estimate that is significantly different than where the price is already. To calculate you take the Price and divide it by the Earnings, or by the Sales, or by the Free Cash Flow. Most of these calculations are done for you on a lot of finance sites if the data is available. Such sites as Yahoo Finance and Google Finance as well as my personal favorite: Morningstar The usual lazy recommendation: See what similar objects, in similar condition, of similar age, have sold for recently on eBay. That establishes a fair market value by directly polling the market. "1) Get some gold. 2) Walk around, yelling, ""Hey, I have some gold, who wants to buy it?"" 3) Once you have enough interested parties, hold an auction and see who will give you the most dollars for it. 4) Trade the gold for that many dollars. 5) You have just measured the value of your gold." Assuming cell A1 contains the number of trades: will price up to A1=100 at 17 each, and the rest at 14 each. The key is the MAX and MIN. They keep an item from being counted twice. If X would end up negative, MAX(0,x) clamps it to 0. By extension, if X-100 would be negative, MAX(0, X-100) would be 0 -- ie: that number doesn't increase til X>100. When A1=99, MIN(a1,100) == 99, and MAX(0,a1-100) == 0. When A1=100, MIN(a1,100) == 100, and MAX(0,a1-100) == 0. When A1=101, MIN(a1,100) == 100, and MAX(0,a1-100) == 1. Of course, if the 100th item should be $14, then change the 100s to 99s. "I think there's a measure of confirmation bias here. If you talk to somebody that started a successful business and got a million out of it, he'd say ""it's easy, just do this and that, like I did"". If you consider this as isolated incident, you would ignore thousands of others that did exactly the same and still struggle to break even, or are earning much less, or just went broke and moved on long time ago. You will almost never hear about these as books titled ""How I tried to start a business and failed"" sell much worse than success stories. So I do not think there's a guaranteed easy way - otherwise we'd have much more millionaires than we do now :) However, it does not mean any of those ways is not worth trying - whatever failure rate there is, it's less than 100% failure rate of not trying anything.  You have to choose what fits your abilities and personality best - frugality, risk, inventiveness? Then hope you get as lucky as those ""it's easy"" people are, I guess."