In my last post “What Should Your Investment Criteria Be?”, I talked about determining your investment criteria. These “trading rules” help you determine what you can (and cannot) pay for a deal.
Because I do most of my deals with investors, my primary investment criteria are the returns for the investors. Therefore it’s critical to project those returns, which will consist of the cash-on-cash return and profits from a sale or re-finance.
Here are the questions to consider and answer:
- How should you structure the deal with your investors? What percent equity should they receive? Should they receive a preferred rate of return, and if so, how much?
- What will be their cash-on-cash return?
- What will be their overall return?
The financial model you use to project the returns of the deal should incorporate these questions and quickly show the impact of structuring the deal in different ways.
In the video below, I use the Syndicated Deal Analyzer to continue to analyze our 44-unit deal from my earlier post (“The 50% Rule to Quickly Analyze an Apartment Building Deal“) with an eye towards projecting the investors’ returns.