Are there deals like this out there?

Question

Hi BP,

I have a quick question for you.

I would like to purchase an apartment complex that has a purchase price around $400,000 and has yearly net profit of $60K. Do these type of deal exist? I could put 20% down.

Let me know if this is realistic investment pursuit.

thanks

Nathan Emmert · Answer

Cash on Cash is the key metric most buy and hold investors are targeting.  Everyone has their own personal rate of return ranging from 10 - 15%... to over 20%... to infinite for some investors depending on their strategies, backgrounds, areas, etc.

Generally speaking... putting 25% down on a conventionally financed property that rents for 1% of purchase price will break even give or take... if it rents for 2% it has a very nice CoC return.

Ethan Jensen · Answer

thanks Nathan. Seems like those are the number, most investors are aiming for?

Nathan Emmert · Answer

Nope.

Even a 2% property would only rent for $96k a year... assuming 50% expenses (which could be low in an area that generates 2% rents) would yield $48k of profit assuming you bought in cash... Given that you are looking to put 20% down (you won't buy an investment property for 20% down, 25 - 35% minimum on multifamily depending on residential or commercial).  But assuming you did 20% down and financed the remainder at 4.5% interest you'd throw another $10k of "profit" towards the loan leaving you with $38k a year.  Still a great return on an investment of $80,000 but not what you posted.