All Forum Posts by: Michael K.

You acquire a property that as a renovation/rehab play, not necessarily just for the units themselves, but also improvements to be made to building systems and exterior . . . Let's say you already know the approximate $ figures of the costs of the renovations you plan to make to the property. I usually just add this amount to the cash invested equity portion. But I am curious to see how others might be incorporating renovation/rehab costs in their financial model, especially if these changes are done over time, a period of a few years perhaps. Also, where you are adding these costs to - to the equity portion? taking additional debt? seller concession? How do you typically account for these renovations costs in your financial model?

Bryan,
I think you hit the nail on the head - use the leverage necessary to achieve positive cash flow. Beyond that point, you are narrowing your margin for error and increasing the overall risk of the investment. A conservative leverage ratio across your portfolio, also helps you keep your properties when the market turns downwards!
Thanks to all for your input.

Thanks for clearing that up!

When acquiring a property, is there any benefit to taking out less leverage on a property? Let's say you finance only 50% versus 70% of the acquisition price.

Why would anyone pay for a property with all cash or more cash than is necessary to achieve positive cash flow after debt service? After all, isn't leverage a major part of why real estate often proves to be so lucrative?

Jon - So when modeling a potential deal we should pretend that we are financing 100% of the deal and see if the property still provides cash flow after that 100% financing debt service? Is that realistic (not in the sense of getting 100% financing, but in the sense of actual properties out there that actually would provide cash flow after 100% financing debt service payments)? If so, what part of the US are these properties located in?

What do you mean by “you will make the full cap rate on the down payment�

Thanks!