Combine Rental Investment with Rent to Own Investment?

[Joel]

How about combining a Rental Investment with a Rent to Own Investment?

Namely; I`m presenting an investment to my friends, to purchase an 8 Plex in a prime area in the city; however the return now is not that great, it`s roughly 3% cash on cash and 7% including capital repayments. The upside to this investment is that the area is experiencing strong appreciation and a very low vacancy. Additionally the rents are well below market value.


At the same time I`m working on a Rent to own deal which will provide roughly 22% annual cash return, so maybe combine them both and offer it as a package?


It will look as followed;


Investment for 8 Plex - $210,000


Cash return - $6,835.00


Investment for RTO - $36,191.18


Cash return - $7,992.00


Total Investment - $246,191.18


Total Cash return - $14,827


Cash ROI ` 6%


Experts; what are the pros and cons of this concept?

 

[Thomas Beyer]

cash on cash return is meaningless.



In a multi-family asset cash-on-cash is likely far lower as all cash flow will be re-invested into asset for higher rents on turnover. As such, show a 5 year view, with likely exit value and mortgage paydown That is where the money is made in multi-family, not with cash-flow !



RTO has higher risk as the investors will have to co-qualify for the mortgage, and the TB might default.



I would not bundle them. Offer two distinct investment opportunities.



If you bundle them, show the total cash required into the corporation, and the total 5 year ROI. There may be cash-flow. There might not be.



Before you do that though, inquire if you will be able to get a mortgage by yourself, or if investors will personally guarantee mortgage, too, as not every investor is willing to do that.