Another potential deal that I am trying to figure out

[Helene Goodworth]

ok guys and gals. 

I learned my lesson from the last one. I was missing a lot of data. This time I decided to make my own spreadsheet instead of using someone else's. It is moderately detailed. The grey areas are the areas in which I can add data. The rest are formulated. I have one box with costs (both listed and what i would offer). The next box has income (both what is listed and what is market value). The next is ROI (I hope I did the right calculations). If any of it doesn't make sense let me know.

I really loved the advice on my last post so am welcoming any advice again this time. It's the best way to learn!

[Don Konipol]

Quote from @Michael Quarles:

Quote from @Alecia Loveless:

@Helene Goodworth I always put 20% down. But sometimes the appraisal comes back higher so I end up with extra equity after closing.

I have a great relationship with my primary lender and they require at least 20% down. They’re willing to work with me and are local to my market. They don’t sell off their mortgages so I will always have a local connection in case I need assistance with the loan or any other aspect of my business.

There’s plenty of good reasons to put 20% down and to me, not being concert leveraged is of primary concern.

Why are you always putting 20% down?   I’m perplexed.  

What makes a “good” deal can differ enormously from person to person.  Low down payment is a significant part of your criteria, Michael, and it obviously fits your personal needs, wants, financial position, goals….
But for myself, for instance, ability to pay a low dp is of absolutely no importance.  My main criteria is purchasing below market value, with a 12% or better ROI.  In fact, it’s a LOT easier to find a good / great below market deal if (1) you offer all cash, quick close, NOT subject to financing and or (2) the property is one in which obtaining financing is difficult, if not impossible.

Another example of where low DP is not preferable is when we syndicate property purchases.  We almost always utilize 50% leverage.  The reason is that we have a relationship with a regional bank that will provide financing and which if we limit leverage to 50% will (1) charge interest at their lowest commercial rate fixed for 20 years with no balloon, (2) charge 0 origination points and no “junk” fees and(3) allow us to sell the property with either a sub to or a wrap loan without increasing the interest rate - in other words no due on sale clause.  We sold one property this year where we wrapped the 4% mortgage note into a 10% note and as a result are enjoying a 17% annual ROI for a minimum of 2 years and possibly as long as 10 years if the borrower/buyer does not pay us off early.

After 40+ years of real estate investing, in many different markets across the country during many different economic climates, both in residential and (primarily) in commercial, I can tell you that hard and fast “rules” should be constantly evaluated to see if they are limiting the opportunity to “jump start” your wealth building.