Am I Overthinking This?

Question

I work as a construction manager and during the estimating phase for a new project we determine desired margin for the project on a case by case basis. As someone starting out in REI is this a reasonable approach to utilize? Or is it essential to develop a standard ROI/COC criteria and stick to it no matter what?

I'm curious because many getting into REI having not done a deal can't get a true feel for what they can actually expect in terms of ROI/COC without having metrics to run off of. While you could talk to other investors, many vary in resources and philosophy so results from investor to investor will vary.

Thanks in advance BP!

Account Closed · Answer

When payments are made in full and on time every month, the banks just collect the money. I sell Turnkeys of these to investors and not one has been called. I've done these for 25 years and I had one called in 2006 because of an associated problem with the seller, otherwise the bank wouldn't have called the loan.

Brian Wilson · Answer

Account Closed

I agree that a JV may be the right way for me to go on the first couple of deals. I'll have to consider it for sure.

I read the thread you linked, interesting post. I'm curious how you've avoided having the banks calling the note, once they realize that the original lendee is no longer in possession of the property?

Account Closed · Answer

It makes a difference if it's New Builds, Fix & Flips, Rentals, Cash Flow (my personal favorite) Multi Family etc.

Every market and every investor is different.  There are two ways to get the information you are seeking, one is to team up with someone that has experience within the market you want to invest and the other is guesswork. Some call it "getting experience".

I see people talking on BP about all kinds of percentages, profits. cash flow ROI, CoC but they don't talk about the cash they put in, how long it took to find funding, find contractors, carrying costs,  the length of time it took to do the project and they leave out other important information like reserves, taxes, setting up entities, capital expenses, how "hot" or "cold" the market is, the class of neighborhood, the  vacancy rate and on and on.

I only do single family and if I don't make $500 (cash flow) a month on a property I will probably pass. That is on a basic $200,000 house that I take over the loan (I don't have to go to a bank). Since I put less than $15,000 into the property and I usually buy the property   at a discount anyway, it's hard to figure an ROI. I suppose you'd take the $6,000 a year cash flow and divide by the $15,000 I put in for 40%. But that doesn't include the typically $20,000 in equity that comes with the house or the tax write offs or the $25,000 I get from the Tenant Buyer I sell to on Lease Option. It takes a spreadsheet to understand it: I've got to believe there are plenty of properties around you that this would work for. That is just one way to do things.

Average Turnkey Cash Flow Per Door In Phoenix Metro Area No Bank Needed

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area

Brian Wilson · Answer

@Joe Villeneuve

Valid point.

Joe Villeneuve · Answer

Let me answer that with a question of my own:

When it comes to your profits, who do you want to make the decisions as to how much profit you get?

a - You

b - The Property

Am I Overthinking This?

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