2.1x in 5 months against a 32% premium over 96. My IRR comparison feels rigged.

Underwriting a single parcel and the two exits keep giving me answers that don't compare cleanly.

Basis is $19,400 all in on 34 acres of mixed timber and pasture with paved road frontage and power at the line. My cash exit assumption is $41,000 in about five months, which is a 2.11x on a five month hold, call it about 267% annualized on a simple basis, or north of 500% if you compound it, before I account for the fact that I cannot redeploy instantly and my next parcel takes two months to find.

The terms exit is $54,000 with $6,000 down at 10.5% over 96 months, which is roughly $741 a month. Total collected is around $77,100. IRR on that stream against a $19,400 basis comes out in the mid 50s.

So the cash deal looks like a blowout on IRR and the terms deal is a much bigger dollar number. The problem is my IRR on the cash exit assumes reinvestment at the same rate, which is fantasy. I only find four or five of these a year and my capital sits between them. If I model the cash exit honestly, with proceeds earning nothing for two months and the next deal being average rather than this one, the gap narrows a lot.

The assumption doing all the work is the 32% premium on the terms price. If a terms buyer in this market only pays $46,000 instead of $54,000, the whole comparison flips.

How are people testing that premium before they commit? I don't want to list at $54,000 for four months to find out.

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3luis_carrera Get yours

Test it by listing both prices simultaneously and reading the inbound, which costs you nothing and takes two weeks. Cash price $41,000, or $6,000 down and $607 a month. Count how many of each inquiry you get and, more importantly, how many of the terms inquiries can actually produce $6,000.

That second number is the one that kills terms pricing in thin markets. You get twelve people excited about $607 a month and two of them have the down payment. If your conversion from terms inquiry to closed is one in eight and your cash conversion is one in three, your terms exit is not a five month exit either and you should be discounting that $64,300 for time as well as risk.

The other thing your IRR is hiding is servicing and default. At $607 a month with a servicer taking $30, you're at 5% of gross payment gone for eight years. Add a lifetime default probability and a recovery haircut and 44% comes down.

I spend too long on models so take the process point for what it's worth: your redeployment gap is real and you should just build it in as a fixed two month cash drag on every cash exit. Then compare. Right now you're comparing one number that's been made honest against one that hasn't.

2.1x in 5 months against a 32% premium over 96. My IRR comparison feels rigged.

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