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GG Smith
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New Investor Need Advice: Private Lender, Short Term, Low Cash on Cash

GG Smith
Posted Mar 2 2024, 18:41

I'm a first time investor, about 40 years old,  looking to take over a family property.  Property is worth about 600k market value.  We feel good about this as it almost sold awhile ago for this exact amount and has been appraised around this as well.

I'm in the unusual position of being able get financing from a private lender.  It's a 12 year term with a 4.75% interest rate with $175,000 down.  Which in this market is very good.  Only problem is with a short term my monthly mortgage payment will be 2K, and will cut deep into my cashflow during that time.

With a little work I can get my COC to 3.1% per month for that 12 years.

Appreciation is about average in this area and I expect to get about 4% annually maybe 5%.  All told the property would be worth about 800k when its paid off.

I can expect to get about $4,500 gross from the property with an NOI of $2,500 monthly (would be about $3,100 with inflation at that time). In other words once that mortgage is paid off I would be getting about $30,000 a year

It's just leading up to that my cash on cash is very poor.  Is this a deal worth considering? 


One final note, this property has a lot of potential for value add opportunities as its located right on a major highway and is 2 acres.  We could easily put in a ministorage down the road or some other high caprate investment.

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Account Closed
Replied Mar 3 2024, 13:15
Quote from @GG Smith:

I'm a first time investor, about 40 years old,  looking to take over a family property.  Property is worth about 600k market value.  We feel good about this as it almost sold awhile ago for this exact amount and has been appraised around this as well.

I'm in the unusual position of being able get financing from a private lender.  It's a 12 year term with a 4.75% interest rate with $175,000 down.  Which in this market is very good.  Only problem is with a short term my monthly mortgage payment will be 2K, and will cut deep into my cashflow during that time.

With a little work I can get my COC to 3.1% per month for that 12 years.

Appreciation is about average in this area and I expect to get about 4% annually maybe 5%.  All told the property would be worth about 800k when its paid off.

I can expect to get about $4,500 gross from the property with an NOI of $2,500 monthly (would be about $3,100 with inflation at that time). In other words once that mortgage is paid off I would be getting about $30,000 a year

It's just leading up to that my cash on cash is very poor.  Is this a deal worth considering? 


One final note, this property has a lot of potential for value add opportunities as its located right on a major highway and is 2 acres.  We could easily put in a ministorage down the road or some other high caprate investment.


Based on the information provided, it seems like this could be a solid long-term investment opportunity. The private lender financing at a 4.75% interest rate is favorable, and the property has good potential for appreciation in the future.

While the monthly mortgage payment may cut into your cash flow in the short term, the opportunity to increase the cash on cash return to 3.1% over the 12-year term is promising. Additionally, the potential for value-add opportunities such as adding a ministorage or other high cap rate investments in the future could further increase the overall return on investment.

Considering the potential for appreciation, the current NOI, and the future potential for additional income streams, this property could be worth considering as a long-term investment, despite the initial lower cash on cash return. It may be a good idea to carefully consider your financial situation and long-term goals before making a decision.

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Jessie Russell
  • Real Estate Agent
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Jessie Russell
  • Real Estate Agent
Replied Mar 9 2024, 18:12

Hello! Initially I have some different ideas on how you can structure the loan to be more beneficial and create more cashflow up front. One being to have a balloon payment but amortize the loan over a longer period. If you would like help underwriting it with different scenarios and run potential numbers I am happy to help!

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