Valuing a cash deal then refi versus an upfront financed one

[Frank VanAusdal]

Hi all:

Longtime lurker; first time poster

This will be my first deal!I am assessing a deal for a 2 unit building.A commercial space on the bottom and residential on top.I am confident of improvement costs and my eventual cash flow.

Regarding assessing the value of the deal.Normally, I would simply divide my cash flow (which includes mortgage payments) by the down payment to get a return.However, because of the condition of the building and the better deal I can get I plan on buying the property cash then improving it and then refinancing to get most of my cash back.

My big question is that going all cash and planning on a refinance is riskier than mortgaging upfront and only risking your down payment.But I am not sure how to calculate this risk.

• (1)What are some risks to my cash that is tied up before I refinance?
• (2)What is the risk premium I should assume for this cash?
• (3)How should I measure the opportunity cost of my money tied up? E.g. compare it to S&P 500 returns?
• (4)How can you estimate what the bank will appraise the property for during the refinance post improvements?Is it as simple as looking at comps?
• (5)Any other tips, watch outs or suggestions would be very much appreciated.

Cheers