All Forum Posts by: Evan Swanson

 Hey Sam. Just sent you a connect invite. 

When underwriting properties, I look for a 5-year ROI of >100% and an IRR of >12% (screenshot below of how those are defined). Please let me know if this is off-base.

I am familiar with valuing companies, and I think these are the minimum returns needed when compared to alternative investments like the stock market. 

Should I be paying more attention to CoC return?

Below is a picture of a duplex I evaluated. The CoC is terrible. But the 5-year ROI and IRR look okay.

My goal is to hold the property long-term. 

Please help! 

Well, in % terms 10% shows a greater return but in absolute dollars 20% shows a better return. So that part is still cloudy for me. Any more thoughts on that? 

But I see what you mean by comparing money not invested to the mortgage rate. 

If I decided on a 10% DP and and not 20%, saving $25,000 on the DP, then the cost of withholding 25,000 of equity is an additional 25,000 of debt at 6.7% interest ($1675/year). So, unless I can find a place where that $25,000 will produce me more than $1675/year (6.7%), just include it in the DP. 

If that money just sat in the bank or wasn't invested at a better rate (other business or rehab resulting in material increase in home value), then I just took on more debt and interest for no reason. 

If the total profit of selling the property is far more than the negative cash flow at the start, then it would be worth it, even if just held for 3-4 years.

Here's how BP calculates "annualized return" to help explain the numbers on the chart: 

Annualized Total Return: This figure is the return on investment that you made on the money needed to do the deal, averaged over the length that you owned the property. It is computed by taking the Total Profit If Sold and dividing it by the cash you put into the deal. Finally, that number is divided by the number of years you held the property for to get an annualized amount.

Quote from @Chris Seveney:

@Evan Swanson

What’s your interest rate compared to what are you going to do with that money? If it is having you save 6% interest to go into a bank account that gets 0.1% then yes it makes sense

It’s also what is your level of risk if the property drops in value - do you still have that cash to recover?

Like 99.999% of questions on BP - it depends but I would say yes your better typically putting more down when rates are higher if you do not need that cash for other things

When I run the #s, the 10% DP has a higher annualized return than the 20% DP. So I was leaning towards putting the least amount down even though there's less cash flow? I'm having trouble understanding how CoC and equity and annualized return relate to the DP

 Thanks for feedback. 

Right now I'm focusing on my business and want to start house hacking. Not looking to be super aggressive with buying properties near term. Buying a new primary residence every 2 years and keeping the old ones to rent out. 

House hacking teachers commonly say "put 3.5 to 5% down" and rent out the other side. 

But if you're able to put in a 20% down payment, should you? 

When people model cash flow is it assumed that 20% down payments are used? 

I look at many houses that cash flow well with 20% DP but not a 5% DP. 

Is it possible to receive an FHA 203(k) loan as an additional loan to your mortgage? For example, only take out 3,000-5,000 to replace kitchen appliances in a multi-family.

CT offers a CHFA program for first-time homebuyers which allows you to finance your downpayment at 1% loan and then receive a below-average market rate for your home mortgage. Interested in a 203(k) loan but probably wouldn't abandon this option if FHA 203(k) isn't available as another small loan.

 Hi Jeffrey, thanks for the question. What do you mean by cash floor? I am using the rule to screen properties.