Vacancy: not sure what to put hereThis is what I'm not sure of with my 1st year ratios:Cap rate: 13.04% (I divided the purchase price by NOI) Now of course my NOI didn't factor in vacancy loss because I wasn't sure how to do that.GRM: 5.51 (I divided the purchase price by the GSI)Return on Equity(yr 1): 36%COC: 70% (isn't this rather high?)

You may feel warm and cuddled, but when the reality of huge financial losses becomes apparent, your feelings might change.The truth is that the vast majority of newbies fail in any business.

As far as an LLC goes, it is a pass through entity in which the entity shows no profit or loss, rather it passes all profits/losses onto the owner's or managing partner's personal tax returns.

In our eyes, the investment makes sense even with the likely loss in equity, but there is actually a possibility we could purchase the fee down the line, which would be icing on a lucrative cake!

With a project cost of $850k ($700k purchase plus $150k rehab) at 81% of the $1.05M ARV you are approaching a break-even deal at best.Since many on this board don't like rules of thumb, here's a detailed profit and loss estimate based on your numbers, a more realistic six-month turnaround, and typical hard money rates in LA right now.Assuming perfect planning, you will earn about $62k or 6% of the ARV, which is way too low and easily eaten up by a small rehab overage, construction delay, or a fair counteroffer of even $1.00M.

If he's a private lender, he should have:1st or 2nd position lien properly recorded on the property to secure his financial interestNamed loss payee on the insurance policy for the property. 

As much as this situation stinks, I'm just trying to cut my losses and be done with him.

I figure this list must be really competitive and that the owners are just getting a lot of mailers.It is getting about time to hit the list again which will be my third pass I and I am debating on whether I should continue mailing to this list or cut my losses and find a different target market to mail to.Thoughts???

It minimizes your potential loss.

You will always make mistakes and get taken advantage of thats part of the business but if you follow the few rules above you can limit your risk and potential financial loss.