What Is the Deal Gap? The One Number That Tells You What to Offer

Every investor has a version of the same question: how much below asking should I offer? The usual answers are folk rules. Ten percent. The 70% rule. Whatever the seller will take.

The Deal Gap replaces the folk rule with a measurement. It is the percentage distance between the asking price and the Target Buy, the price at which the property actually meets your return threshold. A 16.7% Deal Gap does not mean "offer 16.7% less." It means the asking price is 16.7% above the number where this property works for you, and now you know exactly how much problem you are solving.

This post explains what the Deal Gap is, how it is derived, and what to do with it.

The three numbers behind the Deal Gap#

DealGapIQ produces three prices for every property and every strategy. They stack.

The Deal Gap is:

Deal Gap = (Asking price − Target Buy) ÷ Asking price

A positive Deal Gap means the asking price is above what the strategy supports. A negative Deal Gap means the property is already priced below your Target Buy. Zero means it pencils at list.

The full derivation of the inputs is on the methodology page. The rest of this post shows it on a real-shaped example.

A worked example: $325,000 asking, $2,600 rent#

Take a single-family long-term rental with these inputs. These are illustrative but plausible for a mid-priced Sun Belt suburb; every one of them is editable in the product.

Step 1: monthly operating expenses. $325 + $271 + $130 + $130 + $130 = $986.

Step 2: net operating income. $2,600 − $986 = $1,614/month, or $19,370/year.

Step 3: debt service. A $260,000 loan at 6% over 30 years is $1,559/month, or $18,706/year.

Step 4: cash flow at asking. $19,370 − $18,706 = $664/year, about $55/month. On $74,750 invested (down payment plus closing), that is a 0.9% cash-on-cash return.

The property is not losing money at asking. It is just not paying you. A 5.96% cap rate looks respectable on a listing sheet, and it hides a sub-1% return on your actual cash. That difference is the whole reason this number exists.

Solving for Income Value#

Income Value is the price where cash flow is exactly zero. Taxes, insurance, and the loan all scale with price, so you solve for it rather than guess.

At this rent and these assumptions, Income Value is $333,347. The asking price is about $8,000 under it, which is why cash flow is slightly positive. Pay one dollar more than Income Value and the property costs you money every month before appreciation.

Solving for Target Buy#

Target Buy adds the return requirement. At an 8% cash-on-cash target, the price where NOI minus debt service equals 8% of the cash invested is $270,731.

Check it: at $270,731 the loan is $216,585, the payment is $1,299/month, NOI (with lower taxes and insurance at the lower price) is $20,564, debt service is $15,582, and cash flow is $4,981 on $62,268 invested. That is 8.0%, and the debt service coverage ratio is 1.32, which most DSCR lenders would accept.

The Deal Gap on this property#

($325,000 − $270,731) ÷ $325,000 = 16.7%

In dollars, the gap is $54,269. That is the size of the problem.

What a 16.7% Deal Gap tells you#

It does not tell you to offer $270,731. It tells you three things a folk rule cannot.

Whether price alone can close it. A 16.7% price cut is a hard ask on a fresh listing and a routine one on a 90-day-old listing with two prior reductions. Same gap, different conversation. Days on market and the seller's situation decide which.

Which financing levers are big enough. Every $10,000 of price at 80% loan-to-value is about $48/month of payment. But a seller-carried second at 0% on part of the price, or an assumed 3.25% loan, moves the monthly payment far more than a $10,000 discount does. On this property, a $48,750 seller second at 0% with a smaller bank first raises cash-on-cash from 0.9% to 5.6% at full asking, without touching the price. The gap tells you how much monthly payment you need to remove; the structure tells you how.

Whether the rent estimate is the real problem. If a three-comp check supports $2,750 instead of $2,600, NOI rises $1,530 a year and the Target Buy rises with it. Sometimes the gap is a data problem, not a price problem. Verify rent first; it is the cheapest lever.

Deal Gap by strategy#

The same property has a different Target Buy for each strategy, because each strategy values it differently. A fix-and-flip Target Buy is driven by after-repair value and selling costs. A BRRRR Target Buy is driven by the refinance appraisal. A house hack Target Buy is higher than a pure rental's because you occupy one unit at a 3.5% down payment.

That is why DealGapIQ computes the Deal Gap independently for all six strategies and ranks them. A property with a 17% gap as a long-term rental can have a 4% gap as a house hack. The verdict is not "good deal" or "bad deal." It is "here is the strategy where the gap is smallest, and here is what closes it."

How to use the Deal Gap in an offer#

1. Verify the inputs. Rent, taxes, insurance. A wrong input produces a wrong gap with a confident face.
2. Read the gap against the seller. Under 5%: offer near Target Buy with clean terms. 5% to 15%: lead with a small price ask plus one structural lever. Over 15%: the deal closes on structure, or it does not close.
3. Pick the lever that removes the most monthly payment per dollar of seller concession. Seller seconds and assumable loans win here; straight discounts lose.
4. Write the offer at Target Buy or at asking-with-terms, never in between with nothing to show for it.

The Lake Worth teardown walks through four structures on one property with a 10.8% gap. The offer pillar turns this into a repeatable process.

What the Deal Gap is not#

It is not a prediction of what the seller will accept. It is not a valuation; the property may well be worth the asking price to an owner-occupant. It is a measurement of the distance between the price and your return requirement, on your assumptions, for one strategy.

Change the return target and the gap changes. That is the point. A tool that gives one answer regardless of who is asking is not analyzing anything.

We analyze. You decide. Not financial, legal, or investment advice.