What is your HONEST OPINION of my investing model?

79 Replies

I have had various feedback from praise to criticism on the model I use as I invest in real estate. I base a lot of my model on the opportunity I wish I had at the beginning of my real estate investing career and partially on what I did have. Anyway here it is and I would like to hear any and all feedback from those who wish to comment.

I buy houses that are below the medium price point for the area. I want my "all in" to be at 75% or lower of what the ARV will be (including purchase, rehab, carrying costs and hard money costs) and my "all in" needs to be at 145k or less that I can rent out for up to $1300 a month. Then I refinance and suck as much of my capital out of the property as possible (your basic BRRRR strategy). Then I lease option the property where the tenant/buyer gives me $3900 for the option to purchase the property within the specified time frame (usually either 3, 4, or 5 years depending on when I want the proceeds from the sale). The tenant buyer pays a premium rent for the right to buy the property and they take care of most of the repairs so the management of the property is pretty light compared to a straight rental. Following this strategy usually produces 3 times the profit of a regular flip and nets about 50k - 60k in profit over a 3-5 year period of time per property.

In order to do this and scale this model, I usually purchase a property with hard money and then I refinance it into a 20-year commercial loan or portfolio loan. In order to fund the rehabs, I use private money from individuals who want to learn the process of lease optioning a property. These private money lenders will lend me anywhere between 10k and upwards of 40k for a rehab. I then include them on my investor/private money lender WhatsApp group and I show them the process of acquiring properties, managing the rehabs, advertising for tenant buyers, managing the properties, etc. And I share with them all of my contacts and my paperwork. And I make myself available for calls and questions through the process. The private money lenders earn 8% - 10% APR on their money while it is invested and they get to learn throughout the process.

I personally would have loved to have had someone provide this opportunity for me when I was starting out where I could learn the process by watching an experienced investor buy cash flowing properties. And all I needed to do to learn the process and get access to the investor was to fund one of his rehabs. And then I would get my money back plus interest. That would have been awesome for me.

The criticism that I get from some people when I explain my model is they say, “that’s it? You mean I fund the rehab and we don’t split the profits?” If I fund the rehab then I want half the profits.” Even though I found the property, coordinated the hard money, and have established crews to do the work, I have the successful track record, and I have my assistant manage the whole process.

Tell me what you think of my model. Do you think I am being helpful to people or that I am taking advantage of people?

@Shiloh Lundahl


Very interesting model ... if I understand correctly - basically you are doing a BRRRR + Rent to Own with favorable terms.

This is being financed partly by hard money (for the initial purchase) and partly by private investment (for the rehab) 

My only question with regards to the model is -> Do those private investors have a debt or equity relationship? E.g. if they are guaranteed payback at 8% then its basically just a Promissory note - right? 

My other question - why not just own the property for the long term? A lot of magnificent things happen in real estate when you plan and own for the long term.

@Samir Shahani it is a debt relationship with a promissory note and a deed of trust on the property in second position, not an equity relationship.

With doing the model this way, it minimizes my expenses such as cap ex, maintenance and repairs, turn over and vacancy, while I am able to capitalize on above market rent, the option fee, and the sales price bring about 7-10% above current market value without needing to pay realtor fees or concessions at closing. Also it gives me the opportunity to 1031 exchange the profits into bigger and better deals within 3 - 5 years.

@Shiloh Lundahl personally I would look at another market and apply your model.  All in 140K rent for 1300  I would not touch that . Thats about 7% net  ( net income about 10k ) assuming taxes are only 2k.  I would much rather be all in 60kish, with a value of about 75k 80k, ( or more  )  rent for 1k - 1200 , with taxes of 2k, resulting in about 13% net . 

All the best and 

Good luck 

@Bob Prisco thank you for your opinion.  

Most of the taxes are between $400 and $600 a year per property.  Also, every time we buy a property for under market value our net worth goes up by about 30k immediately and our Cash on Cash return is usually in the 100's or 1000's or infinite because of how little we have left of our own money in the property after the refinance.

@Shiloh Lundahl   wow low taxes, still for me, ( But I am VERY spoiled ) would not do the deal. We rinse and repeat as well.    Your model is great. Continued success to you . 

@Shiloh Lundahl

Looks like you've found an interesting niche to operate in and a profitable one as long as you have adequate reserves to cover a black swan amount of non-exercises.

From the way you've described the relationship it does not appear that you are taking advantage of the birddogs making loans. They get a fair-ish rate of return with they added kicker of seeing how the sausage is made. 10% is on the lower side for a second position loan, particularity since it looks like you are cross-collateralized, but then again they get a unique educational bonus, which is hard to put a price on. 

Have you looked at what similar educational programs on LOs cost? That way you could say, "hey to learn this from a program will cost you $x, if you loaned me $25k at market (say 15%), you'd make $3750. By dropping the rate to 10% for me, you make $1250 less than at 15%, but that's less than the $x for so and so's course, plus you see a live deal.  Obviously there is an inflection point at some principal amount where the forgone interest is greater than the cost of learning the process somewhere else.

Have you run the numbers on making them an equity partner to see what that looks like? I imagine that since most of your return comes from disposition, it decreases your returns, but there could be some preferred equity position that works for the birdogs willing to fund a larger rehab that is above the inflection point.

First, if that's the only criticism you get, ignore it...as you are laughing your way along the path with those private lender/partners who operate in the real world.  When those cash Partners come in with all the cash (buy, rehab, etc...), then they can start talking about an equal split.  Until then, ignore them.

Second, I like the basic mechanics of your system, but I'm thinking you may be missing out on a number of options that could enhance your system as you are currently running it.  Specifically the dollars, use and terms of the private lenders cash.

Third, if you adjusted your private funds (see "Second" above), you might not need to use HML anymore.

Originally posted by @Bob Prisco :

@Shiloh Lundahl personally I would look at another market and apply your model.  All in 140K rent for 1300  I would not touch that . Thats about 7% net  ( net income about 10k ) assuming taxes are only 2k.  I would much rather be all in 60kish, with a value of about 75k 80k, ( or more  )  rent for 1k - 1200 , with taxes of 2k, resulting in about 13% net . 

All the best and 

Good luck 

 I think main point of the market Shiloh is in .. is that its realistic to think someone will purchase a 140k home in that market.

were as in Cleveland or anywhere for that matter 60k homes are rental homes are not bought by owner occupants.. so its just a forever cash flow game.. whereas most gap funders are in it for short term interest and have no real desire to own long term.. or have there money out there forever..  and take the risk on the market and rents coming in.  If lessors stop paying they can be a little tougher to unwind when they think they are buying the house.

Originally posted by @Joe Villeneuve :

First, if that's the only criticism you get, ignore it...as you are laughing your way along the path with those private lender/partners who operate in the real world.  When those cash Partners come in with all the cash (buy, rehab, etc...), then they can start talking about an equal split.  Until then, ignore them.

Second, I like the basic mechanics of your system, but I'm thinking you may be missing out on a number of options that could enhance your system as you are currently running it.  Specifically the dollars, use and terms of the private lenders cash.

Third, if you adjusted your private funds (see "Second" above), you might not need to use HML anymore.

I get what your saying just use the private people for 100%  of the funds.. instead of first and seconds..  Also much easier to find 10 to 40k money partners..  tougher when you need 100k plus on one deal from one person. 

now I have a formula that would work for what Joe described.. and have done many times over the years .. not sure if its allowed in AZ but that would get to the same place.. 

Originally posted by @Jay Hinrichs :
Originally posted by @Joe Villeneuve:

First, if that's the only criticism you get, ignore it...as you are laughing your way along the path with those private lender/partners who operate in the real world.  When those cash Partners come in with all the cash (buy, rehab, etc...), then they can start talking about an equal split.  Until then, ignore them.

Second, I like the basic mechanics of your system, but I'm thinking you may be missing out on a number of options that could enhance your system as you are currently running it.  Specifically the dollars, use and terms of the private lenders cash.

Third, if you adjusted your private funds (see "Second" above), you might not need to use HML anymore.

I get what your saying just use the private people for 100%  of the funds.. instead of first and seconds..  Also much easier to find 10 to 40k money partners..  tougher when you need 100k plus on one deal from one person. 

now I have a formula that would work for what Joe described.. and have done many times over the years .. not sure if its allowed in AZ but that would get to the same place.. 

 The formula I use only needs one total private loan in the beginning (can be a couple of sources combined, but not a group, or any, under $100k each).  Pay for it once, even if the initial cost is high (every use will reduce this cost per use to...?).  As the cash (your seed money) is flipped it gathers "friends" (my word for "profit"), which increases the seed money.  This works faster, and you only pay for the loan once (actually, you're not the one paying for it) but you can use the now increased seed money to infinity.  You become your own banker in a sense.

Note, that you must maintain a minimum seed money amount at all times.  Each time you flip this retained seed money, you just spend the profits....which will continue to flow with each and every flip of your seed money.

Golden Rule #1:  Never under any circumstances, ever...spend your seed money.  Use it to infinity, but never, EVER, spend it.

Originally posted by @Joe Villeneuve :
Originally posted by @Jay Hinrichs:
Originally posted by @Joe Villeneuve:

First, if that's the only criticism you get, ignore it...as you are laughing your way along the path with those private lender/partners who operate in the real world.  When those cash Partners come in with all the cash (buy, rehab, etc...), then they can start talking about an equal split.  Until then, ignore them.

Second, I like the basic mechanics of your system, but I'm thinking you may be missing out on a number of options that could enhance your system as you are currently running it.  Specifically the dollars, use and terms of the private lenders cash.

Third, if you adjusted your private funds (see "Second" above), you might not need to use HML anymore.

I get what your saying just use the private people for 100%  of the funds.. instead of first and seconds..  Also much easier to find 10 to 40k money partners..  tougher when you need 100k plus on one deal from one person. 

now I have a formula that would work for what Joe described.. and have done many times over the years .. not sure if its allowed in AZ but that would get to the same place.. 

 The formula I use only needs one total private loan in the beginning (can be a couple of sources combined, but not a group, or any, under $100k each).  Pay for it once, even if the initial cost is high (every use will reduce this cost per use to...?).  As the cash (your seed money) is flipped it gathers "friends" (my word for "profit"), which increases the seed money.  This works faster, and you only pay for the loan once (actually, you're not the one paying for it) but you can use the now increased seed money to infinity.  You become your own banker in a sense.

Note, that you must maintain a minimum seed money amount at all times.  Each time you flip this retained seed money, you just spend the profits....which will continue to flow with each and every flip of your seed money.

Golden Rule #1:  Never under any circumstances, ever...spend your seed money.  Use it to infinity, but never, EVER, spend it.

And, you can add occasional buying "off market" subject to's selling on lease option & getting a larger option fee of oh say, $20k or more and not have to worry about bank qualifying or time spent finding additional investors slowing you down, while adding to your cash flow & using the $20k "pops" to buy more properties which means you are adding properties to your personal inventory taking the tax write offs and watching your principal being paid down while the property grows in value and the tenant buyer maintains & repairs the property so there is no capex .

Originally posted by @Mike M. :
Originally posted by @Joe Villeneuve:
Originally posted by @Jay Hinrichs:
Originally posted by @Joe Villeneuve:

First, if that's the only criticism you get, ignore it...as you are laughing your way along the path with those private lender/partners who operate in the real world.  When those cash Partners come in with all the cash (buy, rehab, etc...), then they can start talking about an equal split.  Until then, ignore them.

Second, I like the basic mechanics of your system, but I'm thinking you may be missing out on a number of options that could enhance your system as you are currently running it.  Specifically the dollars, use and terms of the private lenders cash.

Third, if you adjusted your private funds (see "Second" above), you might not need to use HML anymore.

I get what your saying just use the private people for 100%  of the funds.. instead of first and seconds..  Also much easier to find 10 to 40k money partners..  tougher when you need 100k plus on one deal from one person. 

now I have a formula that would work for what Joe described.. and have done many times over the years .. not sure if its allowed in AZ but that would get to the same place.. 

 The formula I use only needs one total private loan in the beginning (can be a couple of sources combined, but not a group, or any, under $100k each).  Pay for it once, even if the initial cost is high (every use will reduce this cost per use to...?).  As the cash (your seed money) is flipped it gathers "friends" (my word for "profit"), which increases the seed money.  This works faster, and you only pay for the loan once (actually, you're not the one paying for it) but you can use the now increased seed money to infinity.  You become your own banker in a sense.

Note, that you must maintain a minimum seed money amount at all times.  Each time you flip this retained seed money, you just spend the profits....which will continue to flow with each and every flip of your seed money.

Golden Rule #1:  Never under any circumstances, ever...spend your seed money.  Use it to infinity, but never, EVER, spend it.

And, you can add occasional buying "off market" subject to's selling on lease option & getting a larger option fee of oh say, $20k or more and not have to worry about bank qualifying or time spent finding additional investors slowing you down, while adding to your cash flow & using the $20k "pops" to buy more properties which means you are adding properties to your personal inventory taking the tax write offs and watching your principal being paid down while the property grows in value and the tenant buyer maintains & repairs the property so there is no capex .

 Actually, you don't need to "buy off market subject to's"...or off market anything, get a specific $20k" Option consideration (I always get 5%...and pay 5%...and make money on the spread), and I don't (the tenants do) pay down the properties.

You also can pay equal to or even higher than AP' on properties...and make more money than a different REI would have made if they paid less than AP.

Hi Shiloh! I like your model. It's a little different from mine, but it seems to be working for you, which is great. I assume you manage the properties yourself, so you don't factor property management fees in your calculations. The 8-10% rate you're giving your private money lenders seems reasonable to me, since you're still bearing the brunt of the risk and the headaches. I guess you can offer the private money lenders a choice of either a flat rate percentage of return on their investment, OR a percentage of the profits-- that way, you avoid the criticism. I don't know if your model includes flipping properties, but the rent-to-own strategy is a good one for tax purposes: If you're a real estate dealer (i.e., flipping properties) and are carrying the paper on your sale, you cannot use the installment sale method of calculating the capital gains-- you have to pay tax on 100% of the gain when you sell. You avoid this rule by doing the rent-to-own process. Oh, and I LOVE how you put together your lending/investing team on a WhatsApp group! Can I borrow that tip? :-)

Originally posted by @Shiloh Lundahl :

I have had various feedback from praise to criticism on the model I use as I invest in real estate. I base a lot of my model on the opportunity I wish I had at the beginning of my real estate investing career and partially on what I did have. Anyway here it is and I would like to hear any and all feedback from those who wish to comment.

I buy houses that are below the medium price point for the area. I want my "all in" to be at 75% or lower of what the ARV will be (including purchase, rehab, carrying costs and hard money costs) and my "all in" needs to be at 145k or less that I can rent out for up to $1300 a month. Then I refinance and suck as much of my capital out of the property as possible (your basic BRRRR strategy). Then I lease option the property where the tenant/buyer gives me $3900 for the option to purchase the property within the specified time frame (usually either 3, 4, or 5 years depending on when I want the proceeds from the sale). The tenant buyer pays a premium rent for the right to buy the property and they take care of most of the repairs so the management of the property is pretty light compared to a straight rental. Following this strategy usually produces 3 times the profit of a regular flip and nets about 50k - 60k in profit over a 3-5 year period of time per property.

In order to do this and scale this model, I usually purchase a property with hard money and then I refinance it into a 20-year commercial loan or portfolio loan. In order to fund the rehabs, I use private money from individuals who want to learn the process of lease optioning a property. These private money lenders will lend me anywhere between 10k and upwards of 40k for a rehab. I then include them on my investor/private money lender WhatsApp group and I show them the process of acquiring properties, managing the rehabs, advertising for tenant buyers, managing the properties, etc. And I share with them all of my contacts and my paperwork. And I make myself available for calls and questions through the process. The private money lenders earn 8% - 10% APR on their money while it is invested and they get to learn throughout the process.

I personally would have loved to have had someone provide this opportunity for me when I was starting out where I could learn the process by watching an experienced investor buy cash flowing properties. And all I needed to do to learn the process and get access to the investor was to fund one of his rehabs. And then I would get my money back plus interest. That would have been awesome for me.

The criticism that I get from some people when I explain my model is they say, “that’s it? You mean I fund the rehab and we don’t split the profits?” If I fund the rehab then I want half the profits.” Even though I found the property, coordinated the hard money, and have established crews to do the work, I have the successful track record, and I have my assistant manage the whole process.

Tell me what you think of my model. Do you think I am being helpful to people or that I am taking advantage of people?

Looks like another one of the many models that pencils a lot better in theory than in practice. Invariably when I see people touting such models, they're also holding themselves out to be gurus of sorts who aim to profit from "teaching others" their "system", which is replete with all of the requisite buzzwords.. "none of your own money!".. "Infinite returns!".. etc. 

@Jay Hinrichs   have you seen what is going on in Cleveland ? Props are selling for 65- 130k in areas we purchased for 30, -50k, a few years ago.  Clients that paid, 50k are getting 90k values on their refi.  Duplexes are appraising for 85k, vs maybe 45k 5, 6 years ago.  Props in the Lee Harvard area are comping out at 75- 90k vs 30- 50k , 4, 5 years ago.   GH, MH  CH, Euclid props are selling for 75k- 100k ++..  East Cleveland MF are selling for  25 30k per unit! Unthinkable ,4, 5 years ago. 90 units sold last year around the corner from my place for 2.8 MILL, with 40% vacancy and needing $250k in work yes in EAST Cleveland. 

  Try finding a good deal near the Clinic, not going to happen, 4, 5 6 years ago, you could have purchased as many as you want, now good luck finding anything . West side is booming , try finding nice SF for under 60k, or any good deal on MF they do not exist .  If so I will buy as many as you find :)  Things have changed for the MUCH better in Cleveland. 

THIS IS NOT A SOLICITATION ADMIN :) 

Originally posted by @Bob Prisco :

@Jay Hinrichs  have you seen what is going on in Cleveland ? Props are selling for 65- 130k in areas we purchased for 30, -50k, a few years ago.  Clients that paid, 50k are getting 90k values on their refi.  Duplexes are appraising for 85k, vs maybe 45k 5, 6 years ago.  Props in the Lee Harvard area are comping out at 75- 90k vs 30- 50k , 4, 5 years ago.   GH, MH  CH, Euclid props are selling for 75k- 100k ++..  East Cleveland MF are selling for  25 30k per unit! Unthinkable ,4, 5 years ago. 90 units sold last year around the corner from my place for 2.8 MILL, with 40% vacancy and needing $250k in work yes in EAST Cleveland. 

  Try finding a good deal near the Clinic, not going to happen, 4, 5 6 years ago, you could have purchased as many as you want, now good luck finding anything . West side is booming , try finding nice SF for under 60k, or any good deal on MF they do not exist .  If so I will buy as many as you find :)  Things have changed for the MUCH better in Cleveland. 

THIS IS NOT A SOLICITATION ADMIN :) 

I get that my point was you said why not buy a prop for 60k  that rents for 1200...  but I think your now saying you cant do that because values rise.. we expect values to rise that's why we are investors..  no one wants to buy with the thought my property will never go up .. at least I don't think that way.. I suppose those that have not been in the game a long time don't realize you need some significant appreciation like your experiencing to make some real money..  or you better own a ton of them. 

My other point was were areas are dominated by rentals  homeowners do not buy there especially under 100k per house..  

mainly because if they can afford 1200 in rent and have good credit and job they can buy a 200k house which will usually not be in a renter dominated area and better schools.. pretty much what I have seen all over the US>

@Jay Hinrichs Yes you can IF you have a good team in place  buy for about 60kish.  ( AGAIN NOT A SOLICITATION ADMIN ) . Home owners are buying  everywhere. I am sure realtors in the forum will chime in.  Jay the high comps are from homeowners buying :)

All the best 

@Jeff Cagle Thanks for your honest feedback.  

I do run a meetup in Mesa, Arizona where around 200 - 300 different people have come through from experienced investors to brand new newbies.  Some of them get interested in our model and others like more the straight rentals or flipping or the commercial side of real estate.  Some lend to us and we put them in on our WhatsApp group and do lunches with them and make ourselves available to them to analyze deals with them. But I wouldn't say I am a guru in real estate investing.  I have been to guru courses and paid seminars and expensive year-long trainings.  We don't do that.  We just give private money lenders a return on their money and let them learn as much as they are interested in learning from us.  

But to be honest with you.  Several of our properties do get infinite returns because we were able to get all of our money out of the property at the refinance by just following the model that has been explained on BiggerPockets for the last several years.

Originally posted by @Shiloh Lundahl :

@Jeff Cagle Thanks for your honest feedback.  

I do run a meetup in Mesa, Arizona where around 200 - 300 different people have come through from experienced investors to brand new newbies.  Some of them get interested in our model and others like more the straight rentals or flipping or the commercial side of real estate.  Some lend to us and we put them in on our WhatsApp group and do lunches with them and make ourselves available to them to analyze deals with them. But I wouldn't say I am a guru in real estate investing.  I have been to guru courses and paid seminars and expensive year-long trainings.  We don't do that.  We just give private money lenders a return on their money and let them learn as much as they are interested in learning from us.  

But to be honest with you.  Several of our properties do get infinite returns because we were able to get all of our money out of the property at the refinance by just following the model that has been explained on BiggerPockets for the last several years.

Seems like after years of infinite returns you should have plenty of money to fund your own rehabs and not be sourcing "$10-40k" private loans then doesn't it? I myself would have absolutely zero interest in putting together a loan for ten grand, or tens of grands. It's an insignificant amount of money for a business like this. Not even worth the paperwork or accounting. You need to be quite careful about the solicitation of investors, by the way.

@Shiloh Lundahl

I LOVE your model and think it's 110% fair!!

The investor is making interest on their money, that's enough.

But then you go a step further and teach them your trade secrets to success...for free???

That makes you a mentor (on top of a profitable investment), and I love mentors, they're good people!! ;)

If investors want a 50/50 split, they should expect to take on half the risk, funding, acquisition duties, management, and production! 

Thanks for sharing Shiloh, I just may steal your method to try for myself! ;))

Cheers to your prosperity and creativity!!

What % of your investors do you see actually taking this method and applying it to their own purchases? It seems like the model requires you to have a steady flow of newbies willing to come in with cash

Originally posted by @Jeff Cagle :
Originally posted by @Shiloh Lundahl:

@Jeff Cagle Thanks for your honest feedback.  

I do run a meetup in Mesa, Arizona where around 200 - 300 different people have come through from experienced investors to brand new newbies.  Some of them get interested in our model and others like more the straight rentals or flipping or the commercial side of real estate.  Some lend to us and we put them in on our WhatsApp group and do lunches with them and make ourselves available to them to analyze deals with them. But I wouldn't say I am a guru in real estate investing.  I have been to guru courses and paid seminars and expensive year-long trainings.  We don't do that.  We just give private money lenders a return on their money and let them learn as much as they are interested in learning from us.  

But to be honest with you.  Several of our properties do get infinite returns because we were able to get all of our money out of the property at the refinance by just following the model that has been explained on BiggerPockets for the last several years.

Seems like after years of infinite returns you should have plenty of money to fund your own rehabs and not be sourcing "$10-40k" private loans then doesn't it? I myself would have absolutely zero interest in putting together a loan for ten grand, or tens of grands. It's an insignificant amount of money for a business like this. Not even worth the paperwork or accounting. You need to be quite careful about the solicitation of investors, by the way.

I'm being super pedantic here, I know, but the term infinite returns is misleading and in most cases wrong. The real term is infinite cash on cash return.

Infinite CoC is all well and good, but it is simply not all that useful for deals lasting longer than 12 months (the commonly understood time frame) and does reeks of a guru sales pitch.

Based on the info Shiloh provided in this thread, I threw together a quick model to see what the yield is in these deals taking into account the time value of money. I used middle of the road assumptions and still know I have gotten things wrong, but this is an acceptable base case for our purposes. Purchase price is 75% of ARV/contract price, It takes three months to reno/rent out the unit, all loan assumptions are for the refi, and the contract price is the ARV +2% a year for the life of the option. No transaction costs assumed. I didn't have enough info to make any assumptions about the HML portion of the hold, so I modeled all cash purchase for yr 1.

30%+ IRR is excellent, and nothing to scoff at, but its not infinite. Plus these numbers in no way accounts for the risks associated with this niche. Nor does it answer your question Jeff, what do you do with all that cash you pull out? The LO model can only support so much capital in a given geographic region.

Anyway, I'm off my soapbox.

Originally posted by @Bill F. :
Originally posted by @Jeff Cagle:
Originally posted by @Shiloh Lundahl:

@Jeff Cagle Thanks for your honest feedback.  

I do run a meetup in Mesa, Arizona where around 200 - 300 different people have come through from experienced investors to brand new newbies.  Some of them get interested in our model and others like more the straight rentals or flipping or the commercial side of real estate.  Some lend to us and we put them in on our WhatsApp group and do lunches with them and make ourselves available to them to analyze deals with them. But I wouldn't say I am a guru in real estate investing.  I have been to guru courses and paid seminars and expensive year-long trainings.  We don't do that.  We just give private money lenders a return on their money and let them learn as much as they are interested in learning from us.  

But to be honest with you.  Several of our properties do get infinite returns because we were able to get all of our money out of the property at the refinance by just following the model that has been explained on BiggerPockets for the last several years.

Seems like after years of infinite returns you should have plenty of money to fund your own rehabs and not be sourcing "$10-40k" private loans then doesn't it? I myself would have absolutely zero interest in putting together a loan for ten grand, or tens of grands. It's an insignificant amount of money for a business like this. Not even worth the paperwork or accounting. You need to be quite careful about the solicitation of investors, by the way.

I'm being super pedantic here, I know, but the term infinite returns is misleading and in most cases wrong. The real term is infinite cash on cash return.

Infinite CoC is all well and good, but it is simply not all that useful for deals lasting longer than 12 months (the commonly understood time frame) and does reeks of a guru sales pitch.

Based on the info Shiloh provided in this thread, I threw together a quick model to see what the yield is in these deals taking into account the time value of money. I used middle of the road assumptions and still know I have gotten things wrong, but this is an acceptable base case for our purposes. Purchase price is 75% of ARV/contract price, It takes three months to reno/rent out the unit, all loan assumptions are for the refi, and the contract price is the ARV +2% a year for the life of the option. No transaction costs assumed. I didn't have enough info to make any assumptions about the HML portion of the hold, so I modeled all cash purchase for yr 1.

30%+ IRR is excellent, and nothing to scoff at, but its not infinite. Plus these numbers in no way accounts for the risks associated with this niche. Nor does it answer your question Jeff, what do you do with all that cash you pull out? The LO model can only support so much capital in a given geographic region.

Anyway, I'm off my soapbox.

You've made some pretty generous assumptions here. 3 months to renovate and rent out may not hold up. All cash purchase assumed, when we already know hard money is used, probably at 8-10% and a point or two.. and there will always be some degree of transactional friction on both ends. Shiloh also says the properties rent out for "up to $1300 a month", and you have $1600 plugged in. Not to mention the HUGE assumptions:

The market doesn't move against you over the years.

The currently non viable buyer becomes viable over the next couple of years (this is frequently just not going to happen).

The occupant doesn't wreck the property while occupying it, necessitating rehab #2 before it can ultimately be sold to someone else or rented again.

I also cringe when I see things like "tenant takes care of the repairs".. because they presume that they'll be owners someday. Hah! Do you know how much time my guys spend undoing previous homeowners "improvements" and "repairs"? We deal with it literally EVERY day. You wouldn't believe what people will do to a place, if left to their own devices.

@Jeff Cagle All the points you bring up are totally valid, but like I said, that model doesn't pretend to illustrate any sort of risk adjusted returns. It merely gets the discussion in the ballpark. A really smart guy named George Box said "All models are wrong, but some are useful" And to be honest, I'm not going to bother changing one of my full models to suit this unique situation; its more work and all I'd get out of it is fake internet points. 

I set the LO Rate at $1,600 because Shiloh said market rent is around $1,300. LOs usually have some premium over market in my experience. Running a sensitivity table with the LO Rate between $1,200-$1,600 and months to rent from 1-7 gives a range of IRR from 22-31% and MIRR of 15-19%. Again, above average for sure, but not infinite.

You also bring up great points about the LO niche as a whole. I would be very curious to hear from practitioners about their ownership conversion rates, average number of LOs it takes to have an option exercises, costs per subsequent LO.

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