Infill Question

Hi All,
Quick question on infill and cash on cash returns. I am currently underwriting a park that has 4 vacant lots. It is a 20 lot park with 16 occupied. Current rents of approximately $280 with market being ~$320. It’s on public water and septic.

The purchase price of the park is $500,000 and I am assuming I will need $30,000 per vacant lot to buy homes. On an unleveraged basis, I would need $620,000 and assuming I get 75% leverage on my purchase price, my total cash need is $125,000+$120,000 (4 homes) = $245,000.

When you are all underwriting a park with infill needs, how do you look at cash on cash returns? Would your denominator be $245,000 or would it be $125,000?

I know that this is dependent on when you get the capital back - whether by outright sale via 21st Mortgage or Lease w/ an option to purchase, etc. but I am trying to get a better understanding of how people look at infill with respect to actually getting your money back after you sell the home and calculating your cash on cash returns.

Do you assume the total capital needs as the denominator or do you use the initial purchase price as you assume you get the capital back once you sell the home? Would love to hear people’s thoughts on how they approach cash on cash returns and equity basis when selling off homes and getting back capital back right away or over time.

Thanks so much!