Cash on Cash and ROI with Hard Money Loan Financing

[Geoff Antone]

Hello, 

Couple of questions here, this is just an example. Trying to figure out what is a good deal and if this one is a good one. What are your thoughts?

Are the calculations are correct for Cash on Cash and ROI correct?

Geoff

Costs Due at Closing

• Points: 3% of loan (one time) [only financed at 70% of ARV]
• Origination Fees: $1,020 ($400 document processing + general administrative costs, $575 legal fees - preparation and review of all documents, $30 application fee (charged at closing), $15 flood certification)
• Appraisal Fee: $400 - $475 (paid directly to state licensed appraiser)
• Insurance: ARV x .45% -- (paid for 6 months in advance before you close; can choose any insurance company as long as it meets minimum requirements HML has + lists HML as mortgagee on policy)
• Buying Closing Costs: 1% of purchase price (title insurance + escrow fees)

Outside Costs (Holding)

• 4 Month Flip (120 days): 2 months of construction, 1 month on market, 1 month in escrow/title; plan for 6 months
• Monthly payments: 1% of loan
• Utilities: $230/month (varies; $125 electricity, $60 water, $45 gas)
• Property Tax: $3,000/12 months x number of months
• Realtor fees: 4% of ARV (multiple realtors that will list for 1%)
• Selling Closing Costs: 1.5% of ARV

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Example of House:

Buy at $120k

Rehab at $50k

ARV at $230k

Costs Due at Closing

• Points: 3% of loan; financed at 70% of ARV ($230,000 x 70% = $161,000 loan)
  • $161,000 x 3% = $4,830
• Origination Fees: $1,020
• Appraisal Fee: $475
• Insurance: ARV x .45%
  • $230,000 x .45% = $1,030
• Buying Closing Costs: 1% of purchase price
  • $120,000 x 1% = $1,200

TOTAL CLOSING COSTS: $8,555

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Outside Costs (Holding)

• Monthly payments: 1% of loan
  • $161,000 x 1% = $1,610 x 6 months = $9,660
• Utilities: $230 per month
  • $230 x 6 months = $1,380
• Property Tax: $3,000/12 months x number of months
  • $3,000/12 = $250 x 6 months = $1,500
• Realtor fees: 4% of ARV
  • $230,000 x 4% = $9,200
• Selling Closing Costs: 1.5% of ARV
  • $230,000 x 1.5% = $3,450

TOTAL HOLDING COSTS: $25,190

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Out of Pocket Portion for Rehab: $9,000

TOTAL OUT OF POCKET COSTS: $30,095

TOTAL OUT COST INCLUDING REALTOR FEES AND SELLING CLOSING COST: $42,745

Calculations

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Buy at $120,000 + $33,745 (costs) + $50,000 (rehab) = $203,745

Sell at $230,000 - $203,745 (costs + rehab) = $26,255 (PROFIT)

Cash on Cash $26,255 (Profit) / 30,095 (Total Cash Invested) = 87 %

Return on Investment $26,255 (Profit) / $203,745 (Total Spent including all cost) = 12.8%