{"id":82021,"date":"2019-11-14T17:00:40","date_gmt":"2019-11-15T00:00:40","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=82021"},"modified":"2023-08-09T10:05:26","modified_gmt":"2023-08-09T16:05:26","slug":"small-apartment-building-40000yr","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/small-apartment-building-40000yr","title":{"rendered":"How a Small Apartment Building Made Me $40,000\/Year"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC4936089350&#038;light=false\" width=\"100%\"><\/iframe>  \n\n\n\n<p>In this post, I want to demonstrate to you the incredible power of apartment buildings. By using a real case study, I&#8217;ll show you how I added $40,000 per year to my net worth with a small 12-unit apartment building. I hope it will inspire you to take a closer look at <a href=\"\/renewsblog\/2013\/04\/09\/how-to-buy-a-small-multifamily-property\/\" target=\"_blank\" rel=\"noopener noreferrer\">multifamily investing<\/a>, a powerful strategy that can help you achieve <a href=\"\/renewsblog\/2016\/03\/28\/financial-freedom\/\" target=\"_blank\" rel=\"noopener noreferrer\">financial freedom<\/a>\u2014just as it&#8217;s helped me and many others.<\/p>\n<h2>4 Ways Apartments Make You Money<\/h2>\n<p>I love apartment buildings because<strong>&nbsp;<\/strong><strong>there are four ways to make money from them<\/strong>:<\/p>\n<ol>\n<li><em><strong>Cash Flow<\/strong>:<\/em> This is the amount of money that is left after ALL expenses and the mortgage payment are covered.<\/li>\n<li><em><strong>Appreciation<\/strong>:<\/em> This is the difference between what you bought the property for and what you sell it for (minus expenses).<\/li>\n<li><strong><em>Loan Reduction<\/em>&nbsp;<\/strong>(aka \u201cAmortization\u201d): The amount by which your tenants paid down your mortgage balance.<\/li>\n<li><em><strong>Sponsor Fees<\/strong><\/em>: If you\u2019re going to raise money for the deal (which you should!), then you are entitled to certain fees for \u201csyndicating\u201d the deal.<\/li>\n<\/ol>\n<p>For example, you can pay yourself an acquisition fee when you close on the property (typically around 3 percent of the purchase price).<\/p>\n<p>You can also charge an \u201casset management fee\u201d (typically 1 percent of the money raised each year you own the building) and an \u201casset disposition fee\u201d (typically 1 percent of the sales price when you sell the building).<\/p>\n<p>Yes, unlike any other investment in the world, apartment buildings have four profit centers.<\/p>\n<p>Astounding.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-81455\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/10\/metric-evaluate-apartment.jpg\" alt=\"metric-evaluate-apartment\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/10\/metric-evaluate-apartment.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/10\/metric-evaluate-apartment-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<h2>Introducing the 12-Unit Case Study<\/h2>\n<p>I\u2019m going to use my first deal as an example to demonstrate to you WITH REAL NUMBERS how powerful apartment building investing can be.<\/p>\n<p>I use this particular case study because it\u2019s the kind of first&nbsp;deal that you can do anywhere&nbsp;in the country. Even though this is a small deal (12 units), it still added $40K to my net worth EVERY year for five&nbsp;years.<\/p>\n<p>And I didn\u2019t use any of my own money.<\/p>\n<p>Let me show you exactly how, and I hope in the process you\u2019ll see that you, too, can do a deal like this.<\/p>\n<p>Here\u2019s how I bought the property:<\/p>\n<ul>\n<li><em><strong>Source<\/strong>:<\/em> MLS (listed by residential broker)<\/li>\n<li><em><strong>Purchase Price<\/strong>:<\/em> $530,000<\/li>\n<li><em><strong>Renovations<\/strong>:<\/em> $54,000 or $4,500 per unit (it needed a lot of renovations)<\/li>\n<li><em><strong>Cash Needed to Close<\/strong>:<\/em> $227,000 raised from 5 investors in return for a 50\/50 split<\/li>\n<li><em><strong>Projected Returns<\/strong>:<\/em> 15% per year for the investors<\/li>\n<li><em><strong>Acquisition Fee<\/strong>:<\/em> $15,900 payable to me<\/li>\n<\/ul>\n<p>After closing on the property, I renovated the exterior of the building and many of the units. This allowed me to slowly raise the rents, fill the vacancies, and <a href=\"https:\/\/www.biggerpockets.com\/blog\/evicting-tenant\" target=\"_blank\" rel=\"noopener noreferrer\">evict<\/a> non-paying tenants.<\/p>\n<p>This wasn&#8217;t an overnight process. In fact, it took about three years.<\/p>\n<p>After five years, I had it under contract to sell for $850,000. Overall, this building made me a profit of $198,434 in five years\u2014or about $40,000 per year.<\/p>\n<p>Let&#8217;s break down each of the profit centers to better understand the &#8220;$40K per year&#8221; profit.<br \/><em><br \/><strong>Related:<\/strong> <a href=\"\/renewsblog\/81906-2\/\" target=\"_blank\" rel=\"noopener noreferrer\">12 Creative Ways to Add Major Value to Apartment Buildings<\/a><\/em><\/p>\n<h2>How This Small Apartment Building Made Me $40,000 Per Year<\/h2>\n<p>Here are three of the four profit centers:<\/p>\n<ul>\n<li><strong><em>Cash flow over 5 years was a total of $130,545<\/em>&nbsp;<\/strong>(after all expenses and my fees). That\u2019s about $181 per unit per month. Cash flow was tight the first couple of years, but it picked up in the last 3 (as we raised the average rent from $595 to $825).<\/li>\n<li><em><strong>The appreciation was $146,500 <\/strong><\/em>after closing and sales costs, NOT including loan repayment and sponsor fees.<\/li>\n<li><em><strong>The loan principal was reduced<\/strong><\/em> by $48,265 in 5 years.<\/li>\n<\/ul>\n<p>The total amount generated from these three profit centers was $325,310. Since I have a 50 percent share, my portion of those profits was $162,655.<\/p>\n<h2>Let&#8217;s Not Forget the Sponsor Fees!<\/h2>\n<p>In addition to owning 50 percent of the building, I also received certain &#8220;sponsor&#8221; fees for putting the deal together, managing the property manager and eventually selling the whole thing for a profit.<\/p>\n<p>I paid myself $15,900 at closing when I bought the building. I also charged an asset management fee of $2,275 per year (1 percent of money raised) and a 1 percent disposition fee of $8,500 when we sold the building.<\/p>\n<p>All told, my sponsor fees totaled $35,779, putting MY net profit at $198,434\u2014about $40,000 per year.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-92282 size-main-slider\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/09\/walkingpeople-702x336.jpg\" alt=\"\" width=\"702\" height=\"336\" title=\"\"><\/p>\n<h2>What Did I Really Do With This Property?<\/h2>\n<p>I found a property with some problems that I felt I could fix in three to five years. I renovated the property, increased the rents, and reduced the vacancy.<\/p>\n<p><em><strong>Related:<\/strong> <a href=\"\/renewsblog\/use-apartments-escape-rat-race\" target=\"_blank\" rel=\"noopener noreferrer\">Why Apartments Are the Single Best Way to Escape the Rat Race Within 3-5 Years<\/a><\/em><\/p>\n<h2>Was This Difficult?<\/h2>\n<p>Yes and no.<\/p>\n<p>Yes, because I had to take action. I had to educate myself, actually buy the property, and hire the right property management company. And I had to be patient.<\/p>\n<p>But on the other hand, it wasn&#8217;t that difficult. Anyone could have done a deal like this. I bought it for fair market value. In other words, I didn&#8217;t have to buy it at some kind of huge discount. People do deals like this all the time.<\/p>\n<h2>And I Believe You Can Do a Deal Like This as Well<\/h2>\n<p>I can hear the skeptics getting ready to comment below. I don&#8217;t want to hear it.<\/p>\n<p>The only reason you&#8217;re going to post something below like &#8220;it can&#8217;t be done&#8221; and &#8220;you&#8217;re making all of this up&#8221; is because you have limiting beliefs that multifamily won&#8217;t work for you.<\/p>\n<p>I&#8217;ve done it, and others have done it. And I know you can do it, too.<\/p>\n<p>You just need some encouragement and some education. Commit right now to take a serious look at multifamily investing to help you achieve financial freedom.<\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/real-estate-investment-calculator?utm_source=renewsblog\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-91220\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg\" alt=\"\" width=\"700\" height=\"85\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-02-300x36.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>Let me hear from you below. Where are you in your real estate investing journey?<\/em><\/p>\n<p><strong>Share with a comment!<\/strong><\/p>","protected":false},"excerpt":{"rendered":"<p>Why should you take a serious look at multifamilies? Learn about one investor who added $40,000\/year to his net worth with a 12-unit apartment building.<\/p>\n","protected":false},"author":1501,"featured_media":118911,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5527,7119],"tags":[],"class_list":["post-82021","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-commercial-real-estate-investing","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/82021","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1501"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=82021"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/82021\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/118911"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=82021"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=82021"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=82021"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}