We look at buying our NPN notes at a max of 70% of TODAY’S value. Thus, our basis is well below today’s value when/if we end of owning the property.
We also ensure that our cost of the project (foreclosure, renovation, leasing, ti, etc) is well below replacemtn value.
Lastly, we require that when we stablize the property with conservative assumptions (high rental factor, below today’s market rents, etc) we will earn a minimum 12% all cash yield.
Therefore, using the above we are buying at values that will provide us with high all cash yields for a possible long term hold…no flipping expected!!!
Alternatively, if we buy a note at 50% of face (70% ltv on today’s value) and we can get an owner to pay us cash flow and then ‘cut him a break’ at a 75%-80% payoff down the road we make out with a 50%+ profit plus cash flow….
When the market returns at some point, we simply refinance all our our cash out of the deal at the new crazy valuations, cash flow, or sell.
Just use fundamentals of commercial to make sound real esatate purchases and all will work out. But one must pay all cash (or a very high %) and have a 5+ year horizon (preferrably 10 years) and you will look back very happy.
This is not a game for high LTV players, be conservative with underwriting/acquisition strategy until things turn around.
Lastly, re: AZ/NV the fear is exactly why you should buy quality commercial property there now (phoenix over vegas is I had to pick). Its a boom/bust town and you can get incredible deals if you use the above type of transaction structure.
FLIPPING IS NOT INVESTING: BE AN INVESTOR, NOT A FLIPPER!!!
