On Friday, a loan broker who reads this blog secured for us a letter of intent (LOI) from a bank for a refi of a project we just stabilized.
We’re all-into the deal for just under $2.8MM and the LOI calls for the bank to loan us that amount via a cash-out refinancing.
Now, going from an LOI to a closed loan is not always so easy, so I don’t want to give you the impression that this is a done deal… it’s not, by any means.
But I do want to explain why this is such a cool development for our business.
If we can buy a building, renovate it, lease all the units, and the get a loan which allows us to take out all of the capital invested after +/- 12 months, then the return on the capital invested is pretty amazing.
Why? Well, return on investment is calculated by dividing the profit by the amount invested. If you get all your capital back but still own the building (and it cashflows!), then you’re dividing by zero… a mathematical impossibility.
I don’t want to give you the impression that we’re able to do this on every deal… we executed this one very well, but we also got some help from the market (because rents ended up being higher than expected).
Still, it’s pretty cool, right?