It works the other way, too

It works the other way, too. Let us say the speculator is offered a six-family double Toby for $22,000. The income is only $3,000. He does some quick figuring. He multiplies $3,000 by six and two-thirds. That makes $20,000. So he offers $18,000 or $19,000. You come along and apply the Value Formula. It shows a value of $26,000! You haggle a little and buy it at $21,000. In these cases, the speculator has missed out on some topnotch investments because he used his rule-of-thumb. The Freeman case bears this out.
A speculator whom we will call Jack, offered me the Freeman group of Aunt Tobys. There were four-family and three-family buildings in the lot, fourteen apartments in all. The income in 1946 was about $5,880, with very low-rent-controlled ceilings. The woman who sold them to Jack had been peddling them about for some time and all who came offered her between $23,000 and $25,000, to permit a resale at six and two-third times the annual income with a good profit. Finally Jack had bought it for about $25,000 and set out to sell it at a profit.


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