What To Invest in? Sample Deals

April 19, 2017

 

With so many different real estate options, what and where should we be investing in?

 

At our 3rd Real Estate Investor Meetup in San Mateo last Wednesday, we presented four past deals from individual investors.  

  • Kevin - Private lending in Florida

  • Patrick - Private lending in California Bay Area, assisted care facilities in Arizona

  • Henry - Turnkey rental property in Oklahoma City

 

Key Lessons Learned:

  • Each deal is unique - know your numbers before getting into a deal (worst case and best case).

  • Private Lenders protect their downside and prefer to lend when the borrower has “skin in the game” plus reserves.

  • 10,000 baby boomers are retiring each day and will require better housing options to fulfill their aging needs.

  • Multiplexes (i.e. duplex, triplex, quadplex) if properly managed and maintained, can create solid long term returns.

  • Returns on each deal is the result of properly structured deals, experienced professionals, and individuals' abilities to find, analyze, negotiate and manage the deals.

Some key terms we discussed (definitions from Investopedia):

  • After Repair Value (ARV) is an estimate of the property’s fair market value after repairs and renovations are completed.

  • Capitalization Rate allows investors to compare properties by evaluating a rate of return on the investment made in the property.

    • Cap Rate = Net Operating Income / Current Market Value 

  • Cash On Cash, unlike ROI, only measures the return on the actual cash invested, normally used for investment properties that involve long-term debt borrowing. 

    • CoC = Net Operating Income / Total Investment

  • Return on investment allows investors to evaluate the efficiency of an investment made in the property by measuring the amount of return on an investment relative to the investment’s cost.

    • ROI = the benefit (or return) of an investment / cost of the investment. 

  • Debt Service Coverage Ratio (DSCR) is a measure of the cash flow available to pay current debt obligations.

    • DSCR = Net Operating Income / Total Debt Service

Interested in finding out more? Feel free to reach out for more details.

 

Kevin + Kiri

 

 

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