Real Apartment Deal At a 28.57% Return & Deal #2
This if for all of those that may not know about Commercial Real Estate and why it is so lucrative. This is also one of those deals the we come across all of the time but this one is actually in the “pretty darn good” category.
Because this is my sandbox, I am going to change the rules on my 21.5% challenge too. I am going loan myself another $150,000 of virtual money and take my my portfolio up to $250,000. Let’s say I took an equity line out on my virtual house in order to do this or I used my IRA. Because I am going to plunk down $140,000 of my virtual money and do this very real deal.
For anyone interested, this property is FOR SALE and the numbers I will be using on it are real.
Ok, here is why I like this puppy. This is a 36 Unit Apartment Building in the Mid-West in a college town. College town means that the rental markets are usually very good. That is why this one is 100% occupied almost all of the time.
The purchase price is $1,575,000 and it was appraised at $1,800,000 a few years ago. It throws off a net profit after expenses of $140,000 per year before depreciation, but it gets better.
The owner is willing to owner finance for 3 years at 6% interest with $140,000 down. Here is the math on this.
Ordinary Income/Expense
Income
Rental income 197,768.99 Total Income 197,768.99
Expenses
Garbage collection 722.72
returned check 825.20
Lawn Care 1,334.39
advertisement 500.00
refunds 3,000.00
Bank Service Charges 27.76
Insurance - Liability 13,895.00
Professional Fees 277.50
Repairs 12,098.03
Supplies 2.13
Taxes- Real Estate 19,891.04
Telephone 1,003.48
Utilities 3,970.30
Total Expense 57,547.55
Net Ordinary Income 140,221.44
We will need to add in our debt service. We are going interest only for 3 years at 6% which is
$1,575,000
-$140,000 Down payment
= $1,435,000 @ 6% per year = $86,100 per year or $7,175 per month
So, we are left with a gross net profit of $54,121. Now if we were going to manage it ourselves that would be a 38.657% net return. Not too bad, but we will have someone else manage it for us.
In this area we have a couple of options. We can offer to let someone stay there for free at a cost of about $450 per month so that they can show people in an out and do light maintenance, or pay someone to do this for us. At most it would cost us about $1,000 per month. More than likely, you could pay an Agent or someone else $50 each time they showed an apartment and find a contractor for $250 a month to keep an eye on things for you and do light maintenance.
If we do this, we could end up with about $50,000 net-net profit. This gives us a 35.7% return. Pretty good wouldn’t you say?
But rather than go low, we can say it is going to cost us $14,000 per year to have someone else manage it for us.
We still end up with a net of $40,000 per year divided by $140,000 for our down payment and we have a 28.57% return, plus we have about $200,000 or more in equity. This is my kind of deal.
Unlike a stock, this is cash flow. We make $3,333 each month. These are returns that we can go buy groceries with!
Now if you did this in your Roth IRA, this would be tax free money. Even if you did not, by the time you take out appreciation and interest payments, you will have to pay very little if anything in taxes.
That is why I am going to do this one in my virtual account. I have spent$140,007 so far.
If you are interested in purchasing this deal, please contact me. I have a feeling it will not last long.
