A real estate investor explains how 6-8% cash-on-cash returns grow into substantial profits over 15-20 years through debt paydown and rent increases. Developers typically raise capital twice: first to buy land and secure entitlements that boost its value, then again if needed for construction financing.
I didn't think it would be this hard. But, you know, you're getting amortization on your debt, you're getting appreciation from rent growth because your NOI grows. And so a project with initial cash-on-cash of, I don't know, 6, 7, 8% right now, it doesn't, doesn't scare me because most of these projects I'm planning to hold for the next 15, 20 years or longer. And over that time, we're going to make tremendous money with these projects. But it's a, but it's a capital Whatever cash we're tying up in these deals, it's probably going to be in there for 4 or 5 years until my rents have grown enough and my debt has amortized enough to where I can pull that cash out.
That's all it is. We have a lot of clients that are doing developments, and there's 2 places where they tend to raise money. One is to get the land tied up or purchased and then to go through the entitlement process, getting to the permits. And a lot of them find that once they've done that, they've also created value in the land that's looked at by the construction lenders. So you may not need to bring in any more money, depending on your construction costs. And if it's not sufficient to count as your equity on the construction loan, then you would be able to raise additional money again.
Mm-hmm.
