Final Numbers

After spending just about every free minute I have analyzing the heck outta these 12 properties, I've come to what I hope are two final conclusions. The first option is to buy 6 of the 12 properties, immediately sell 4 of them via owner financing, and keep two as rentals. As I had mentioned before, ALL of the houses currently cashflow negative, so I'd be taking a huge risk that I can sell the 4 properties within a 3-4 month period. If I have to hold onto them longer, I'm in deep doo-doo. However, with all signs pointing to the area appreciating like mad AND the fact we will be heading into the summer in about 2-3 months soon, I'm willing to take the risk. I also read some write-ups on Realtor.com from local agents who say the average time on market now is <60 days, so that's even more good news - and that's the retail market. My second option is to buy just five of the properties, and only keep one as a rental. I'll actaully have a better COCR doing it this way (as well as a smaller risk), but I'll be losing out on a long-term hold.

Here are some numbers for anyone who cares:

Option #1

Initial Investment: $28,000
This will cover all acquisition costs, closing costs, the birddog fee, and carrying costs. If I still have all four of the properties I plan to owner finance still in my pocket after 3 months, I'll need to borrow some money. I seriously doubt this will happen. But even if things get real tight, two of the properties have enough equity that I can wholesale if need be, but this would be my dead-last option.

2+ Year Projection:
Owners of all four properties cash me out. Now, I know this is probably wishful thinking, but with the terms I'll be offering, I should get some eager buyers who would refinance pretty readily.

Total Net Profit after 2+ years: $109,000
Once the owners start cashing me out, I plan to turn right around and pay off the 2nd mortgages on both the rentals. This will reduce my cash reserves by about $34,000, which would still leave me with $75,000 to buy other properties with. The two big reasons for doing this are (1) both properties will then cashflow positive, and (2) it will eliminate the high-interest loans. I may also consider just doing a refi myself, since the LTV should be well below 80% then, however, the current owner has some real good rates on his 1st mortgages: 6.875% and 7.5%. Who knows what the rates will be in two years.

Total COCR: 167.77%
Total COCR Annualized: 52.52%
Total Equity: $104,300
Total Cash+Equity: $179,300
Total Cash+Equity Return: 540.16%
Total Cash+Equity Return Annualized: 121.59%

Option #2

Initial Investment: $27,500
Again, this will cover all acquisition costs, closing costs, the birddog fee, and carrying costs. The costs associated with the additional rental I decided not to get helps me out with the other properties. I could still be in trouble after 4 or so months, but again, I really don't see that happening.

2+ Year Projection:
(Same as with Option #1.)

Total Net Profit after 2+ years: $118,000
Once the owners start cashing me out, I plan to turn right around and pay off the 2nd mortgage on the lone rental I still have. This will reduce my cash reserves by about $17,000, but I will still have a little over $100,000 in reserves. As with Option #1, I may even refinance the rental to pull more cash out for some new deals.

Total COCR: 266.82%
Total COCR Annualized: 74.54%
Total Equity: $53,000
Total Cash+Equity: $154,000
Total Cash+Equity Return: 459.67%
Total Cash+Equity Return Annualized: 109.19%

At this point, I'm strongly leaning toward Option #1. It carries more risk, but the rewards are hard to pass up. Plus, I'll have two rentals cashflowing positive with over 40% equity in each. Not to mention, I'll have just $25k less in my reserves than with the second option. Granted, that could probably be a downpayment on another property, but since I already have one more, it evens out. :-)

Now, I need to go have a chat with a local RE attorney who can set all this up for me. (Yeah, I included attorney fees in both deals - probably not nearly enough, though, I'm afraid.)