All Forum Posts by: Derek Lamonde

Good points and helpful for the calculations. 

I had heard that the finance rate for investment properties was higher, but am not sure how much. My broker actually recommended claiming that I was going to take up occupancy in one of the units, but I really don't want to go down that path. 

You may want to have a look at modulars and certified modular installers. They can customize your plans and the costs are more predictable/consistent. If you're dropping it on a pre-existing foundation and self-GCing the lot prep, it's even cheaper. I'd advise going with lots that have town water/sewage. 

I'm typically buy and hold MFHs w/ my own cash.

Hi All,

Typically, my primary focus is the Cap rate and appreciation potential because I've been all cash on previous deals. However, more and more I'm leaning toward financing given the current interest rates. This "cash on cash" concept is something that I'm just now trying to understand.

My first question is:

What is an acceptable period to recoup my purchase money out of pocket? For example, if I finance $300k of a $360k purchase and net $15k after ALL expenses (TOE and mortgage). Is a 4 year recoup a great deal? 

How do I calculate the cash on cash analysis? 

What's the formula?

My second question is:

Given the ridiculous 15 year rates (2.75%), does it make sense to net $5k annually and have the property owned outright in 15 years vs. a 30 year mortgage (3.6%) where I'm pocketing $15k annually? The 30 year option nets me $225k by the time my 15 year would be paid off.  However, who knows where market prices will be at that time so possibly little to no appreciation... 

My thought is that by owning outright in 15 years, I've pocketed $75k and wherever the market is I get money on the sale. Additionally, leading up to a sale assuming the same rental income and inflating TOE a bit, I'm netting $27.5k annually. So selling at the 15 year mark for anything over is a better deal. Am I not looking at this correctly? 

If my financial situation is supposed to be part of the equation, I do well in my full-time gig so the monthly income either way is just savings. My long term financial plan is geared toward an early and comfortable retirement. 

Historically, I've been involved in buy and holds. However, I've recently become interested in other approaches to REI. I'd like to meet folks that have been involved in flips, builds, etc. and can help me to navigate the landscape.

I'm always in the market for central NJ. Primarily Hunterdon and Morris Counties and potentially Bridgewater. 

I've received direct mailings at my properties in Hunterdon and Bridgewater, but not sure of their level of success. When I contacted the guy sending them he stated he worked for a company and they were trying to penetrate the area. They had one property in my areas up to that point despite the mailing campaign, which from what I can tell was probably their third or fourth attempt. 

He sent over a proposal that was more of a 2/3 to 1/3 split in his favor, but I'm thinking if I'm financing that should be the other way around. He has no cost. I could argue a 50/50 split since he is finding the lot and doing all the achtual work, but the financial risk is all on me. If the house sits, I'm the only one losing money. 

Also, what is the contract situation here? I would think we would want something legally binding between us, correct?

Initially I contacted a builder to inquire about putting a MFH on a lot I was looking at and he basically talked me out of it. We ran through the numbers together and determined the lot is about $50k over priced. As the conversation progressed, he asked if I'd be interested in partnering on flips. 

So I'd like to understand what would be his incentives? 

How would we structure those deals?

Are flips typically all out of pocket cash or can you finance them?

This confirms what I've suspected. I've actually received them at my primary home for rental units that we own. Although I've never seen follow-up, so that my be the trick.

NJ's average "deal" Cap appears to be ~7%, which I came up with because I've analyzed a crazy number of properties in the a few areas that I focus on for MFHs. I analyze listings weekly that I have no interest in just to keep the averages fresh in my head. I keep hearing that in "C-D" areas, e.g. Newark, Union, etc. folks are getting higher Caps, but I prefer A-B+ areas to avoid hassles and give higher appreciation potential over the long-term. So, I rely heavily on appreciation as I can pile money into an REIT at 7% and not have to deal with tenants, maintenance, etc. There are a number of factors that go in to my appreciation assessment, which is pure speculation regardless of WHO is doing the projection. My only advice would be to know your area well and routinely analyze properties so you know the potential values and are ready to move quickly when a deal appears.