Cash on Cash and ROI with Hard Money Loan Financing

3 Replies

Hello, 

Couple of questions here, this is just an example. Trying to figure out what is a good deal and if this one is a good one. What are your thoughts?

Are the calculations are correct for Cash on Cash and ROI correct?

Geoff

Costs Due at Closing

  • Points: 3% of loan (one time) [only financed at 70% of ARV]
  • Origination Fees: $1,020 ($400 document processing + general administrative costs, $575 legal fees - preparation and review of all documents, $30 application fee (charged at closing), $15 flood certification)
  • Appraisal Fee: $400 - $475 (paid directly to state licensed appraiser)
  • Insurance: ARV x .45% -- (paid for 6 months in advance before you close; can choose any insurance company as long as it meets minimum requirements HML has + lists HML as mortgagee on policy)
  • Buying Closing Costs: 1% of purchase price (title insurance + escrow fees)


Outside Costs (Holding)

  • 4 Month Flip (120 days): 2 months of construction, 1 month on market, 1 month in escrow/title; plan for 6 months
  • Monthly payments: 1% of loan
  • Utilities: $230/month (varies; $125 electricity, $60 water, $45 gas)
  • Property Tax: $3,000/12 months x number of months
  • Realtor fees: 4% of ARV (multiple realtors that will list for 1%)
  • Selling Closing Costs: 1.5% of ARV

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Example of House:

Buy at $120k

Rehab at $50k

ARV at $230k

Costs Due at Closing

  • Points: 3% of loan; financed at 70% of ARV ($230,000 x 70% = $161,000 loan)
    • $161,000 x 3% = $4,830
  • Origination Fees: $1,020
  • Appraisal Fee: $475
  • Insurance: ARV x .45%
    • $230,000 x .45% = $1,030
  • Buying Closing Costs: 1% of purchase price
    • $120,000 x 1% = $1,200

TOTAL CLOSING COSTS: $8,555

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Outside Costs (Holding)

  • Monthly payments: 1% of loan
    • $161,000 x 1% = $1,610 x 6 months = $9,660
  • Utilities: $230 per month
    • $230 x 6 months = $1,380
  • Property Tax: $3,000/12 months x number of months
    • $3,000/12 = $250 x 6 months = $1,500
  • Realtor fees: 4% of ARV
    • $230,000 x 4% = $9,200
  • Selling Closing Costs: 1.5% of ARV
    • $230,000 x 1.5% = $3,450

TOTAL HOLDING COSTS: $25,190

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Out of Pocket Portion for Rehab: $9,000

TOTAL OUT OF POCKET COSTS: $30,095

TOTAL OUT COST INCLUDING REALTOR FEES AND SELLING CLOSING COST: $42,745

Calculations

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Buy at $120,000 + $33,745 (costs) + $50,000 (rehab) = $203,745

Sell at $230,000 - $203,745 (costs + rehab) = $26,255 (PROFIT)

Cash on Cash $26,255 (Profit) / 30,095 (Total Cash Invested) = 87 %

Return on Investment $26,255 (Profit) / $203,745 (Total Spent including all cost) = 12.8%

Geoff,

Your numbers look good, just a couple of items which can go south and it’s best to be prepared; are your construction numbers solid - do you have written bids from contractors?  Have you included a 10% “over run” to your total construction budget, believe me this is necessary?  Is your market selling that quickly?  

Just a few thoughts to consider to avoid a potential pitfall.  Otherwise, it looks like you have a great opportunity!

Good luck,

Sue Hough

Depending a a lot of things, I can get you a better deal on the financing. Mostly where the property is located. If it is in Alhambra I am guessing I can do 8% interest and 2 points. I got one approved for 7% and 1 point a couple of months ago. Where I see people have problems is getting permits, but usually they are rebuilding something different. I think if you are just restoring an existing structure you will not have the problem. Anyway the cheaper financing could save you a couple of thousand dollars, in the scheme of things it is not that much, but you might as well get it.