Real Estate Rehab Investors have several options for funding their rehab projects. Below we have summarized the various different options and their corresponding R.O.I. The scenarios discussed are for actual borrowers that we work with. Their specific information has been changed.

Mr. Smith is a savvy real estate investor who has been buying and selling properties for 10 years. He has $200,000.00 liquid to put into “flipping” his properties. Mr. Smith’s options are:

USING ALL CASH

Mr. Smith uses his $200,000.00 to buy and rehab a property for $180,000. He spends about $20,000 to repair the property and the home is now valued at $325,000. He sells the property at 5% under market (for a quick close) at $308,000.00. After closing costs and realtor fees, Mr. Smith makes a profit of $80,000. The process takes him 5-6 months to complete. Because Mr. Smith must deploy all of his funds for each transaction, and each transactions takes 5-6 months to complete, he can only turn 2 properties per year. He earns an annual average income of $160,000. His annual cash on cash return is 80%.

USING AN EQUITY PARTNER

Mr. Smith partners with his neighbor, Mr. White who also has $200,000.00 that he is willing to invest. He agrees to partner with Mr. Smith in return for 40% of the total profit. With Mr. Smith’s funds and his own, he is able to double the amount of properties that he can “flip” in a years’ time for a total of 4. With the same averages used in his “all cash” scenario; Mr. Smith will now make a total profit of $320,000 annually. His total profit, after paying Mr. White his 40%, is $192,000. His annual cash on cash return is 96%.

USING GENCAP

Mr. Smith leverages his $200,000.00 by obtaining financing from GenCap. His average total cash contribution per transaction (including rehab, loan points, fees, payments and closing costs) is $65,000. Assuming his transactions take 5-6 months to complete, he will turn his initial $200,000 twice, allowing him to close 6 transactions per year. His profit after all costs and fees averages $60,000 per transaction. This allows his an annual average income of $360,000 which he does not have to share with an equity partner. His annual cash on cash return is now 180%!

The difference is in the numbers. As you can see, by leveraging his initial $200,000 in a partnership with GenCap, Mr. Smith is able to more than double his annual income!