Deal Analysis

Question 1

Cash on Cash ROI

Answer 1

A figure that represents the rate of return on cash invested into a property. Cash on Cash ROI=Annual pre-tax revenue/Total cash invested. EX: A property purchased with a down payment of $20,000 that provides $6000 annual revenue has a cash on cash ROI of 30%

Question 2

Annual Pre-tax Revenue

Answer 2

The amount of money that a property generates each year after subtracting expenses (mortgage, management fees, maintenance, repairs, etc.)

Question 3

Down Payment

Answer 3

The amount of money the buyer decides to personally pay up front at the time of purchase. Generally speaking, a 20% (or higher) down payment is required to avoid paying for mortgage insurance

Question 4

PMI

Answer 4

“Private Mortgage Insurance”

This is a type of insurance that protects the lender in case a buyer defaults on their loan payments. It is required for the buyer of a property to pay for PMI under certain circumstances. EX: If the down payment of a property is less than 20% of its value, then PMI is often required.

Question 5

Mortgage

Answer 5

A loan that is taken out to buy a home or other kind of real estate property

Question 6

Subject-To

Answer 6

Purchasing a property under the conditions of the seller’s original mortgage. This is generally done without notifying the seller’s lender as an informal arrangement between the seller and buyer. The buyer submits an acceptable down payment to the seller and then begins to submit payments on the seller’s behalf to their original lender. Includes an inherent amount of risk to both buyer and seller because of the informal nature of the agreement.

Question 7

Wholesale

Answer 7

A wholesaler contracts (rather than buys) a property from a seller. Then, the wholesaler finds another investor who is interested in buying the property before the contract is up. The wholesaler passes the contract off to the investor at a higher price point than the seller’s original list price and keeps the difference.

Question 8

Capital Expenditures

Answer 8

Abbreviated “CapEx.” These are any expenditures that are big ticket items that are rare, but still something to be considered in the overall management of a property. These are items like roofing, new heat/ac, appliances, etc.