This week we’re continuing with our analysis of the Investment Summary, the all in one marketing package for any real estate deal. We go into financial projections and how to understand the equity multiple and how that plays a role in your toll returns. At the core of every investment is the financials. It comes down to the business plan, the expenses and how the projected income will play a role together in achieving the returns that are being projected by the sponsor.
It’s super important to understand how these financials work and how they affect you and the investment you’re involved in. So join the community and grab this free information that can help you gain even more knowledge when it comes to your investment strategy.
- At the core of every investment are the financials. We look at how the expenses and projected income are going to work together to deliver the type of returns that are being projected by the sponsor.
- When looking at the investment summary you should be asking questions such as: What is the exit cap? What are the reserves that the operator has in place? What construction projects are they going to do? How conversative are the projections?
- It’s vital to know what your investing goals are so you can analyze whether the answer to your questions align with those goals.
- Real estate investing doesn’t fail simply due to the economy, it fails when operators can’t pay the bills when the economy isn’t what they expected it to be. So make sure there’s enough reserves/capital to provide security in the deal.
- The equity multiple: how quickly are you going to double your money and at what multiple are your returns going to be at? A longer timeframe relates to a safer lower return investment and a shorter period generally indicates a higher more lucrative risk.
- It’s easy to fall into the trap of just wanting the highest return but what you want to ask is: How does the return I’m going to receive relate to the risk I’m taking to get said return?
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The Investor Mindset Podcast & President VonFinch Capital
Steven Pesavento has always been obsessed with understanding how we can think better, how we can be better and how we can do better. He is an active real estate investor who curates Commercial Real Estate Investments for clients.
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