My partner and I have some cash to invest and want to know if we should put down 20% down and finance the rest in and free our cash for more investments? Right now we are looking at a 99k deal in a hot area in south Florida. It’s rented for 1,100 month and hoa is 283 a month. Doing the figures we are approximating another 120 a month for taxes and 130 for insurance leaving us with a monthly cash flow of 567.00 if we pay in cash. Obviously less cash flow if we finance. We want to build equity and sell in about 6 -12 months depending on the market. What do you think?
Pay Cash or Finance
There are many variables to consider when choosing the right funding vessel for a RE Venture. Leveraging through, cash, credit, structure, etc., etc. The more data you supply, the more the incredible minds on this site can best guide you. In short however, there is the general rule of “Cash is King”, and you need to balance out the relationship of forgone earnings on your $99,000, vs the interests costs of the $99,000 over a 6-12 month hold period. This assumes, you have much more than $99,000 sitting in contingency & personal reserves. If you don’t, then the answer is simple, leverage the transaction through credit as much as you can, minimizing risk to capital, forgone opportunities, etc., assuming the transaction’s timing requirements will provide for a financed deal.
On another note:
99,000 Deal….You may want to study those numbers again, as I’m coming up with total annualized returns (Cash flow) of $260 per month/$3,100 annually; or around 3%, based on the variables expressed, and other important expenses and contingencies many investors leave out. The math indicates this is a poor performer for a portfolio, however, I assume this is a Condo/Pud of some sort, and the true potential isn’t so much cash flow valuation, as it is the upside, as your target buyer in 6-12, will most likely be an end user, and they don’t care about IRRs & Cap Rates, etc. All they care about is value, availability of financing, then payment, payment & payment. Be careful that you have a good planned exit strategy. Know your target audience when you sell. Know them well. Condos may be a tough product to finance. And if an end user can’t finance their purchase, then you’ve eliminated 50-95% of your target market, hence creating a risky(er) proposition.
[QUOTE=JMartinez;891991]My partner and I have some cash to invest and want to know if we should put down 20% down and finance the rest in and free our cash for more investments? Right now we are looking at a 99k deal in a hot area in south Florida. It’s rented for 1,100 month and hoa is 283 a month. Doing the figures we are approximating another 120 a month for taxes and 130 for insurance leaving us with a monthly cash flow of 567.00 if we pay in cash. Obviously less cash flow if we finance. We want to build equity and sell in about 6 -12 months depending on the market. What do you think?[/QUOTE]
Cash or Financing
[QUOTE=JMartinez;891991]My partner and I have some cash to invest and want to know if we should put down 20% down and finance the rest in and free our cash for more investments? Right now we are looking at a 99k deal in a hot area in south Florida. It’s rented for 1,100 month and hoa is 283 a month. Doing the figures we are approximating another 120 a month for taxes and 130 for insurance leaving us with a monthly cash flow of 567.00 if we pay in cash. Obviously less cash flow if we finance. We want to build equity and sell in about 6 -12 months depending on the market. What do you think?[/QUOTE]
There are many variables to consider when choosing the right funding vessel for a RE Venture. Leveraging through, cash, credit, structure, etc., etc. The more data you supply, the more the incredible minds on this site can best guide you. In short however, there is the general rule of “Cash is King”, and you need to balance out the relationship of forgone earnings on your $99,000, vs the interests costs of the $99,000 over a 6-12 month hold period. This assumes, you have much more than $99,000 sitting in contingency & personal reserves. If you don’t, then the answer is simple, leverage the transaction through credit as much as you can, minimizing risk to capital, forgone opportunities, etc., assuming the transaction’s timing requirements will provide for a financed deal.
On another note;
99,000 Deal….You may want to study those numbers again, as I’m coming up with total annualized returns (Cash flow) of $260 per month/$3,100 annually; or around 3%, based on the variables expressed, and other important expenses and contingencies many investors leave out. The math indicates this is a poor performer for a portfolio, however, I assume this is a Condo/Pud of some sort, and the true potential isn’t so much cash flow valuation, as it is the upside, as your target buyer in 6-12, will most likely be an end user, and they don’t care about IRRs & Cap Rates, etc. All they care about is value, then payment, payment & payment. Be careful that you have a good planned exit strategy. Know your target audience when you sell. Know them well. Condos may be a tough product to finance. And if an end user can’t finance their purchase, then you’ve eliminated 50-95% of your target market, hence creating a risky(er) proposition.