All Forum Posts by: Trevor J Dammon

@Anthony Johnson @Brock Mogensen,

What type of loans do investors typically obtain for development deals? Just curious how they compare to bank loans, hard money lenders, and private lending.

Hi @Jim Pellerin,

Thanks for the reply. How would I go about researching these companies? Is this the same as an REIT?

I see lots of talk about cash flow and the necessity of cash flow to achieve financial freedom. Both my wife and I have good paying W-2 jobs and are comfortable making investments that don't cash flow. Is there a better strategy for maximizing ROI?

What would your strategy be if cash flow was not a driving factor?

Hi @Paul Moore,

After more research and listening to the advice of others here I've realized cap rate is a poor comparison to ROI. The initial scenario I laid out (fully paid off property with cap rate of 10%) is a poor premise to begin with, because most real estate investors want to use leverage and therefore won't have a property that is fully paid off with no HELOC. Since cap rate doesn't factor in your initial investment it is hard to compare it to ROI.

Many people suggested looking at IRR for a more direct comparison with ROI. I found that the IRR formula was exceedingly complicated and while I could use a computer to find IRR, I dislike following methods I can't understand. Also, I found it uncommon for IRR to be applied to properties with fewer than 4 units ,which is the size I am examining.

I have my own method for making this comparison which I have found useful and is actually pretty simple. If I want to find the ROI of a duplex over 5 years let's say, first I estimate my equity gained. Houses tend to appreciate 2% per year so over five years the house will appreciate roughly 10%. If the house value was $500,000 when I bought it, it should now be worth about $550,000 and I will have gained $50,000 in equity. I will also have gained equity due to amortization. Using 5% interest rate over 30 years for this example I will pay off roughly 8% of the loan. Let's say the loan amount was $400,000. After 5 years I have paid off (and gained in equity) $32,000.

What all this math boils down do is after 5 years I will have gained about 16% (varying be the LTV) of the initial property value. To find ROI over 5 years I just have to take 16% of the initial home value divided by my down payment. ($500,000 / $100,000) * .16 = 80% ROI, which is a little better than 12% per year.

Now the big caveat is that all of this assumes neutral cash flow. In other words all expenses even cap ex are covered by rental income and there is no positive cash flow.

You can tweak the loan amount to whatever you feel is realistic for 0 net cash flow. All-in-all it is a pretty simple method but it is useful to get an idea of expected ROI.

@Jim Pellerin, thanks for replying. The situation I listed is purely hypothetical. I have heard people on the BP podcast talk about taking investors and I am just trying to get a sense for what those deals look like.

I've been listening to the BP podcast and a lot of the investors they interview talk about getting outside investors and using other people's money. I'm just curious how these deals typically are structured. Where do I, the person finding deals, benefit.

For simplicity sake let's say I finance a duplex using money from two investors (50/50) and none of my own money.  Would I just collect an annual fee or would I take a % of equity?

Hey all,

I'm new to the real estate journey and have starting running numbers on duplex/triplex/quadplex in the Minneapolis area. Occasionally I see a description on the MLS that says something like 3rd floor/basement/extra area that could be turned into an additional unit.

For example: https://www.zillow.com/homedet... "Large versatile 3rd level could be 4th bedroom, owners suite, office or 3rd living area."

What sort of things should I be looking for or asking the realtor when analyzing a property with this "extra space".  If anyone has successfully added an extra unit to a property like this I'd love to hear your story!  

Thanks all.  

@Hunter Terryn and @Ryan Lockstein thanks for the replies! All good advice!

Hi All,

Newbie here. I've been creating some spreadsheet, analyzing deals, and researching properties as much as I can. I'm now starting to look into the BRRRR method and have a couple questions.

First Question: Why do I need to purchase the property with cash or hard money. A lot of sources claim that I need to buy the property either with cash, a HELOC, or with hard money so that I can refinance after the rehab. Why can't I get a standard loan to buy the property and then refinance after the rehab?

Second Question: How are you finding distressed properties? Currently I use the MLS, which I know isn't the best way to find home runs. It seems like most properties there are already in pretty good shape. I could contact realtors but realistically I am not looking to buy for another year at least. I've heard of driving for dollars or investors mailing out letters but again I think I am a little new to the game to do that. I'm not sure I could have a fully competent conversation if I did get a response from a letter.

@Jeff Schemmel, thanks Jeff. 

I think that is very good advice and it is right in line with what I want to do. Any tips on finding properties that can be rehabbed? Should I be looking for places that are underpriced in terms of square footage? or maybe looking for unfinished basements?