Analyzing Return With No Cash In Deal

[Rashad Luckett]

I am curious as to how investors are evaluating their returns if they have no cash in a deal.

Example:

3bd/2bath

Purchase: $85k

ARV: $155k

Reno: $15k

The down payment/closing costs and reno cost me a total of $30k out of pocket. I was able to get a HELOC for $35k which allowed me to get all of my cash out. (Yes, this was a HELOC on an investment property. PENFED does them until you own more than 4 properties. )

My cash flow after all expenses (piti, capex, vacancy, etc…) is $400/mth. Evaluating a COC return seems impossible to me since I have none of my own cash in the deal. Am I thinking about this all wrong? How should I be evaluating my return in this situation?

[Chris Martin]

Welcome to BP.

It is an . Your rate on non-owner occupied (NOO) is higher than a HELOC. If the rate and terms aren't the same, then it's not a HELOC.

But, yes, many of us on BP have done what you have and effectively fully leveraged after stabilization. The most I've seen done this way is $1,594,563,800 and . The fact is you put in $30K to get to where you are. I wouldn't worry about calculating return, per se. I interpret my company's deals like this in terms of (effectively) a balance sheet maneuver where your theoretical asset value exceeds your basis.  I say theoretical because in 2007-08 these numbers didn't matter much.

BTW, looks like you did a good deal. Congratulations!