You might be skeptical that you can get any kind of decent cash flow and a reasonable return from a regular apartment building deal if you get other investors involved. I mean, is the pie really big enough for everyone?
It most certainly IS possible to make this work. Let’s take a look at a fictitious deal but make some real-world (and conservative) assumptions.
While we always try to buy at a discount and then try to double the value of the building in 3-5 years, the example that I’m going to describe does not assume either. In other words, we’re going to talk about a boring deal that still works. Chances are, if you try a little harder, you should be able to do a lot better.
But let’s stick with a conservative example to prove our point. Let’s see how we can nevertheless create a good return for our investors and ourselves.
Let’s assume that you are buying a 10-unit apartment building at a 10% cap rate of actual financials. The average rent per month is $1,000 and increases by 3% per year. The asset is fully stabilized with a historic 10% vacancy rate. Assume that we’ll need $1,000 per unit in renovations, for a total of $10,000. Your expenses are 45% of income and increase 3% per year.
In other words, this is a really boring building putting out solid cash flow without any particular upside.
Watch the short video below, in which I use the Syndicated Deal Analyzer to analyze our fictitious, boring 10-unit deal.
Here are the key take-aways from this video:
- Deals bought with investors CAN cash flow and yield attractive returns – for you and your investors.
- You don’t necessarily have to buy a killer deal. Sometimes buying a profitable ATM machine is all that it takes. OK, then maybe buy a few more -;)
- Raising money from others lets you do as many deals as you want to.
- Raising the income (or lowering the expenses) even by a little bit can make a HUGE difference in the returns.