How much cash flow in multi family

23 Replies

Hello Guys, Question for guys looking to invest by end-of year in a multi family building. Lets say it cost two million and has fifteen doors. Lendor wants 25% down. So mortgage is $9,000 what cash flow would be acceptable per door ? 1.Looking for how much you would you accept $ per door 2. What city do you invest in? Im looking at Houston, Memphis, And Phoenix. 3. How long do you want / reccomend holding for? Is there a point of keeping ? Or only to refi and to repeat the process? Any apartment investors out there lets talk!

@Alexander Parada the first part of your post and questions don't make any sense , sorry. 

$2million cost with mortgage of $9,0000 ?

Most likely if you are buying in a market when you get only 15 doors out of 2million you are paying $133k per door. these hardly ever cash flow properly on 25% down.

Is this in California?

1. first year if its value add i would consider bellow $100 per door. once re positioned I would aim for $100 per door and growing year 3-5. 

2. these are 2 different cities all together, do you have teams in any of these Cities , property manager or done research on any?

3.  how long is depending on your strategy, are you long term investor for cash flow?

I think you need to ask the questions to yourself, why wouldn't you keep a cash flowing property? unless your strategy is to sell or do a 1031 exchange.

My personal strategy is buy add value, refi and roll.

Cash flow depends on NOI, so that is a critical piece of info we would need to know in order to answer your question.

@Hadar Orkibi 's strategy, as he mentioned above, is in my opinion the best strategy for long term growth and wealth building. Once you add the value and stabilize the property and get at least 1.5 to 2 years of operating history, the overall value of the property increases allowing you to refi, pull out the accumulated equity and roll that into a new asset. Wash, rinse and repeat and you'll be on your way to a nice size cash flowing portfolio.

We have recently purchased multifamily in a few B neighborhoods around Memphis. After an extensive renovation, each unit is valued at $45,000-$47,000 per door. (according to the lender & appraiser) We are seeing $595 - $625 rents and about 42% expenses. 

The key factor in selecting these projects has been LOCATION. I've found that if you can offer clean & safe housing to America's workforce, you will have quality tenants "lined up" to live in your properties.

Hey @James Wachob   how much did you pick them up per door and how much did you have to put in them? 

Im interested to know also what was the sqf of the units, bed/bath.

if you dont mined sharing.

@Hadar Orkibi  we purchased a 53 unit apartment for $500,000. The property was in need of a complete turn-around, not a simple fix and flip.

A complete turn around consisted of a FULL renovation = $1,100,000 

We released each unit and with proper property management in place, this property recently appraised for $2,491,000

@James Wachob its probably the one i remember you mentioned last year.. 

all up cost at about $30k per door with that rent sounds great. 

Most deals start making sense if can be around 1.7%-2%

I just bought a property for $2m so I can help ($2.15m, but who's counting).


I'm going to have to use a made up loan amount since really I had the property appraised at a higher value, and my actual loan amount was more than my purchase price + upgrades so I'm in it for no money -- and it cash flows.  But since that's not always something everyone can do, we'll use more generic #s

A bank would want 20% down (my bank does 80% LTV normally) - or $400k. Let's say 5%, 25 year am. That's $9,300/month.

This property currently has $26k/month in rent (I could raise that up to 32k/month + if I did the same upgrades to the second half that I did to the first half, but that would raise my cost basis so let's forget that right now)

Property tax is $3k, all other crap is about 5k (management, insurance, utils, repairs), etc.  So that's 8k/month in costs, or $18k/month in income.   Subtract that debt service and it's $8,700 in cash flow.  Or $104.4k/year.

I put down $400k.  So my return is 25+%.  On a nice downtown property that stays full no problem and has been super upgraded.  And actually my refi got me all my $ back so it's infinite.

This is why I tell anyone who will listen to buy multifmaily. 

@James Wachob Hey james sound like you are kicking but out there. Can you assist in finding a similar type of project ? Or know of a realtor that can assist? Im trying use a 1031. I have five single families in Houston. Now its time step it up with some multi family this year.
@Hadar Orkibi You are right Hadar it did not make sense. Was just trying to gauge how folks are putting these deals together and cash flowing them. Seens like everyone looking for value ads. Its tough out there looking at all those dead deals on loopnet with so many days on market. I know at times there are still deals to be had here but not for the most part. What cities do you invest in?
@Cody L. Whats up Cody, Thats exactly the type of Deal I’m striving to get. What city is that deal in and also mind sharing how you get these deals know a realtor / broker to refer? I have a flooring business in Houston. So Im familiar with the Texas market.
Originally posted by @Alexander Parada :
@Cody L.

Whats up Cody, Thats exactly the type of Deal I’m striving to get. What city is that deal in and also mind sharing how you get these deals know a realtor / broker to refer?

I have a flooring business in Houston. So Im familiar with the Texas market.

 I get deals all different ways:

MLS (just last week)

LoopNet (this one)

Broker network (most deals)

Me calling owners 

Random’s calling me 

Bird dogs / Wholesellers calling me. 

This deal is smack dab downtown Houston. All my deals are in Houston with 80% inside the loop and the other 20% close to the loop. I’m not a fan of BFE investing 

@Cody L. i had drive by your areas earlier this year, Jeee the Taxes are so high in Montrose Houston etc.  I don't know how you get the numbers to work there in today's markets.

Originally posted by @Hadar Orkibi :

@Cody L. i had drive by your areas earlier this year, Jeee the Taxes are so high in Montrose Houston etc.  I don't know how you get the numbers to work there in today's markets.

 I own about 500 units in Montrose. The crazies buying class c today at these inflated prices are NOT making money. Period. At least not on clash flow. Most are syndicator who make $ on fees and management and are using an optimistic 5 year proforma to get others with $ to go in on these deals. 

Sucks for people like me as there are less deals at a reasonable price. But I’m still doing 2-5 apartment deals a year. I just have to be SUPER aggressive on much terms since my price is lower. And hope that strong terms gets it done. 

Originally posted by @Cody L. :

I just bought a property for $2m so I can help ($2.15m, but who's counting).


I'm going to have to use a made up loan amount since really I had the property appraised at a higher value, and my actual loan amount was more than my purchase price + upgrades so I'm in it for no money -- and it cash flows.  But since that's not always something everyone can do, we'll use more generic #s

A bank would want 20% down (my bank does 80% LTV normally) - or $400k. Let's say 5%, 25 year am. That's $9,300/month.

This property currently has $26k/month in rent (I could raise that up to 32k/month + if I did the same upgrades to the second half that I did to the first half, but that would raise my cost basis so let's forget that right now)

Property tax is $3k, all other crap is about 5k (management, insurance, utils, repairs), etc.  So that's 8k/month in costs, or $18k/month in income.   Subtract that debt service and it's $8,700 in cash flow.  Or $104.4k/year.

I put down $400k.  So my return is 25+%.  On a nice downtown property that stays full no problem and has been super upgraded.  And actually my refi got me all my $ back so it's infinite.

This is why I tell anyone who will listen to buy multifmaily. 

So impressive!!!

Thank u for sharing with us, Cody !

Such an inspiration for all of us! 

Originally posted by @Cody L. :

I just bought a property for $2m so I can help ($2.15m, but who's counting).


I'm going to have to use a made up loan amount since really I had the property appraised at a higher value, and my actual loan amount was more than my purchase price + upgrades so I'm in it for no money -- and it cash flows.  But since that's not always something everyone can do, we'll use more generic #s

A bank would want 20% down (my bank does 80% LTV normally) - or $400k. Let's say 5%, 25 year am. That's $9,300/month.

This property currently has $26k/month in rent (I could raise that up to 32k/month + if I did the same upgrades to the second half that I did to the first half, but that would raise my cost basis so let's forget that right now)

Property tax is $3k, all other crap is about 5k (management, insurance, utils, repairs), etc.  So that's 8k/month in costs, or $18k/month in income.   Subtract that debt service and it's $8,700 in cash flow.  Or $104.4k/year.

I put down $400k.  So my return is 25+%.  On a nice downtown property that stays full no problem and has been super upgraded.  And actually my refi got me all my $ back so it's infinite.

This is why I tell anyone who will listen to buy multifmaily. 

  So I have a question for all of you guys. To do what Cody is doing ,  what kind of income does one have to have or what kind of assets do people have to have in order to qualify for millions of dollars in loans? 

  Does one have to have a W-2 job where they make a lot of money? Or, you just have to have a lot of assets? 

 Let’s say a person doesn’t have a job where they make a lot of money. 

 Let’s say person doesn’t have any assets at all. 

But a person has a down payment of 30% on one million Dollar building. 

 Would they qualify for a multi family loan ? 

 Or how do you make yourself positioNed to get financing for multi family  ? 

Originally posted by @Mary Jay :
Originally posted by @Cody L.:

I just bought a property for $2m so I can help ($2.15m, but who's counting).


I'm going to have to use a made up loan amount since really I had the property appraised at a higher value, and my actual loan amount was more than my purchase price + upgrades so I'm in it for no money -- and it cash flows.  But since that's not always something everyone can do, we'll use more generic #s

A bank would want 20% down (my bank does 80% LTV normally) - or $400k. Let's say 5%, 25 year am. That's $9,300/month.

This property currently has $26k/month in rent (I could raise that up to 32k/month + if I did the same upgrades to the second half that I did to the first half, but that would raise my cost basis so let's forget that right now)

Property tax is $3k, all other crap is about 5k (management, insurance, utils, repairs), etc.  So that's 8k/month in costs, or $18k/month in income.   Subtract that debt service and it's $8,700 in cash flow.  Or $104.4k/year.

I put down $400k.  So my return is 25+%.  On a nice downtown property that stays full no problem and has been super upgraded.  And actually my refi got me all my $ back so it's infinite.

This is why I tell anyone who will listen to buy multifmaily. 

  So I have a question for all of you guys. To do what Cody is doing ,  what kind of income does one have to have or what kind of assets do people have to have in order to qualify for millions of dollars in loans? 

  Does one have to have a W-2 job where they make a lot of money? Or, you just have to have a lot of assets? 

 Let’s say a person doesn’t have a job where they make a lot of money. 

 Let’s say person doesn’t have any assets at all. 

But a person has a down payment of 30% on one million Dollar building. 

 Would they qualify for a multi family loan ? 

 Or how do you make yourself positioNed to get financing for multi family  ? 

With commercial it's much more about selling the bank on the deal.  And yourself.

To put it in context, if I tried to get a SFH loan for a $100k house, I'd get denied. Because I don't check the boxes of what the loan originators need (I never call those people lenders, as they're not really lending their $, which is why each of them have zero ability to give you a loan that any one else couldn't -- they're not lending their $ thus not really making a decision based on your situation)


With a local bank, the deal is being pitched.  Both by you to your banker, and then by that banker to the committee.   You can have negative income on tax returns and still buy $10m+ properties.  The downside is with commercial you're not going to get a 30 year fixed loan in the 4%'s or options for 5% down.  Commercial is almost always going to be ~20-30% down, 5 year(ish) fixed, 20-25 year am, 5-10 year term.

Good luck~!

Originally posted by @Cody L. :
Originally posted by @Mary Jay:
Originally posted by @Cody L.:

I just bought a property for $2m so I can help ($2.15m, but who's counting).


I'm going to have to use a made up loan amount since really I had the property appraised at a higher value, and my actual loan amount was more than my purchase price + upgrades so I'm in it for no money -- and it cash flows.  But since that's not always something everyone can do, we'll use more generic #s

A bank would want 20% down (my bank does 80% LTV normally) - or $400k. Let's say 5%, 25 year am. That's $9,300/month.

This property currently has $26k/month in rent (I could raise that up to 32k/month + if I did the same upgrades to the second half that I did to the first half, but that would raise my cost basis so let's forget that right now)

Property tax is $3k, all other crap is about 5k (management, insurance, utils, repairs), etc.  So that's 8k/month in costs, or $18k/month in income.   Subtract that debt service and it's $8,700 in cash flow.  Or $104.4k/year.

I put down $400k.  So my return is 25+%.  On a nice downtown property that stays full no problem and has been super upgraded.  And actually my refi got me all my $ back so it's infinite.

This is why I tell anyone who will listen to buy multifmaily. 

  So I have a question for all of you guys. To do what Cody is doing ,  what kind of income does one have to have or what kind of assets do people have to have in order to qualify for millions of dollars in loans? 

  Does one have to have a W-2 job where they make a lot of money? Or, you just have to have a lot of assets? 

 Let’s say a person doesn’t have a job where they make a lot of money. 

 Let’s say person doesn’t have any assets at all. 

But a person has a down payment of 30% on one million Dollar building. 

 Would they qualify for a multi family loan ? 

 Or how do you make yourself positioNed to get financing for multi family  ? 

With commercial it's much more about selling the bank on the deal.  And yourself.

To put it in context, if I tried to get a SFH loan for a $100k house, I'd get denied. Because I don't check the boxes of what the loan originators need (I never call those people lenders, as they're not really lending their $, which is why each of them have zero ability to give you a loan that any one else couldn't -- they're not lending their $ thus not really making a decision based on your situation)


With a local bank, the deal is being pitched.  Both by you to your banker, and then by that banker to the committee.   You can have negative income on tax returns and still buy $10m+ properties.  The downside is with commercial you're not going to get a 30 year fixed loan in the 4%'s or options for 5% down.  Commercial is almost always going to be ~20-30% down, 5 year(ish) fixed, 20-25 year am, 5-10 year term.

Good luck~!

 Thank you, Cody!
Commercial lending is what actually scares me with multifamily. Its kind of an uncertainty, right? Because every 5 years the owner of a property has to shop for a new loan on the same property, right?

How do you guys do it? It seems like a lot of stress and hustle, right? What if the bank wont lend the money in 5 years on that property? And will push due on sale clause? (Make the owner of the property pay off the balance owed) That could happen, right?

Am I being too dramatic? Ive never had a commercial loan

Hey @Cody L. ! Thanks for sharing your insights on this deal. I had quick follow up questions. You mentioned not being able to qualify for a SFH loan for 100k. So how are you coming up with the 20-30% down payment for the commercial loan. Is it money from other investments? Income from something other than W2?

Thanks!

Originally posted by @Mary Jay :
Originally posted by @Cody L.:
Originally posted by @Mary Jay:
Originally posted by @Cody L.:

I just bought a property for $2m so I can help ($2.15m, but who's counting).


I'm going to have to use a made up loan amount since really I had the property appraised at a higher value, and my actual loan amount was more than my purchase price + upgrades so I'm in it for no money -- and it cash flows.  But since that's not always something everyone can do, we'll use more generic #s

A bank would want 20% down (my bank does 80% LTV normally) - or $400k. Let's say 5%, 25 year am. That's $9,300/month.

This property currently has $26k/month in rent (I could raise that up to 32k/month + if I did the same upgrades to the second half that I did to the first half, but that would raise my cost basis so let's forget that right now)

Property tax is $3k, all other crap is about 5k (management, insurance, utils, repairs), etc.  So that's 8k/month in costs, or $18k/month in income.   Subtract that debt service and it's $8,700 in cash flow.  Or $104.4k/year.

I put down $400k.  So my return is 25+%.  On a nice downtown property that stays full no problem and has been super upgraded.  And actually my refi got me all my $ back so it's infinite.

This is why I tell anyone who will listen to buy multifmaily. 

  So I have a question for all of you guys. To do what Cody is doing ,  what kind of income does one have to have or what kind of assets do people have to have in order to qualify for millions of dollars in loans? 

  Does one have to have a W-2 job where they make a lot of money? Or, you just have to have a lot of assets? 

 Let’s say a person doesn’t have a job where they make a lot of money. 

 Let’s say person doesn’t have any assets at all. 

But a person has a down payment of 30% on one million Dollar building. 

 Would they qualify for a multi family loan ? 

 Or how do you make yourself positioNed to get financing for multi family  ? 

With commercial it's much more about selling the bank on the deal.  And yourself.

To put it in context, if I tried to get a SFH loan for a $100k house, I'd get denied. Because I don't check the boxes of what the loan originators need (I never call those people lenders, as they're not really lending their $, which is why each of them have zero ability to give you a loan that any one else couldn't -- they're not lending their $ thus not really making a decision based on your situation)


With a local bank, the deal is being pitched.  Both by you to your banker, and then by that banker to the committee.   You can have negative income on tax returns and still buy $10m+ properties.  The downside is with commercial you're not going to get a 30 year fixed loan in the 4%'s or options for 5% down.  Commercial is almost always going to be ~20-30% down, 5 year(ish) fixed, 20-25 year am, 5-10 year term.

Good luck~!

 Thank you, Cody!
Commercial lending is what actually scares me with multifamily. Its kind of an uncertainty, right? Because every 5 years the owner of a property has to shop for a new loan on the same property, right?

How do you guys do it? It seems like a lot of stress and hustle, right? What if the bank wont lend the money in 5 years on that property? And will push due on sale clause? (Make the owner of the property pay off the balance owed) That could happen, right?

Am I being too dramatic? Ive never had a commercial loan

 Yeah, that sucks.  I'd love a 30 year full am loan in commercial.  But you don't get that.  Reason being is commercial is real people loaning real money.  These banks have to match what they can offer their customers with their funds (somewhat).  And for a bank to lend me 30 year money at 4.5%, they'd have to OFFER 30 year money at 1 (MAYBE 2%) to their customers, locked up for 30 years.

And yes, doing the constant refi game sucks.  Some banks will do 7 years, some 10.  A lot of agency debt for bigger deals is 10 years, some longer.  Most of my loans are what I call "5+2", so 5 year fixed, 2 years float.  So you get some rate risk after 5 years but at least you won't have the rug pulled out.

It seems I'm always working on a refi. I've never had a problem. And if you have an aggressive am schedule (~20 year) then at least after 5-7 years you've paid off a good chunk, and appreciation has helped you. But no doubt it's a risk to consider.

Originally posted by @Royce Hodnett :

Hey @Cody L.! Thanks for sharing your insights on this deal. I had quick follow up questions. You mentioned not being able to qualify for a SFH loan for 100k. So how are you coming up with the 20-30% down payment for the commercial loan. Is it money from other investments? Income from something other than W2?

Thanks!

Let's say my properties make $500k. And by "Make" I mean the amount in my bank on Jan 1 started at $1, and by Dec 1 it was $500k. I made $500k right? Well after depreciation that might be closer to $0 (though many banks will add that back). Or after a loss carry forward it might be negative. Or after deprecation of some capx from years back that you still carry, it might be negative. Or you're buying distressed properties that need repairs and you sink money in and you're paid back via a refi vs pure cash flow.

If you just have multifamily, and no regular W2 job, there are lots of ways you can have little to no income while still being able to put down on a property over and over. 


Another way (I gotta go so I'm going to try to summarize).  Let's say you take that $500k and buy a $2m property with $400k down and invest $100k to fix it up.  You stabilize it,  it appraises after for $3m.   You take out a new loan for $2.4m.  Well your old loan was $1.6m.  So you have an extra $800k.  But you put in $500k so really it's an extra $300k more in your bank than before. 

Do that a bunch of times, and you could have a lot more in your bank, but that's not really "income".  You didn't sell anything.  It's a loan.

EVENTUALLY you're going to get wacked with taxes.  You can't do this forever as once you sell something (your cost basis will be low) and don't 1031 it.  Or once you stop growing and just sit on a bunch of stabilized cash flowing properties, you'll have tons of taxed income.  And then congrats you can finance a 1-4 family again. 

Originally posted by @Cody L. :
Originally posted by @Royce Hodnett:

Hey @Cody L.! Thanks for sharing your insights on this deal. I had quick follow up questions. You mentioned not being able to qualify for a SFH loan for 100k. So how are you coming up with the 20-30% down payment for the commercial loan. Is it money from other investments? Income from something other than W2?

Thanks!

 Let's say my properties make $500k.  And by "Make" I mean the amount in my bank on Jan 1 started at $1, and by Dec 1 it was $500k.  I made $500k right?  Well after depreciation that might be closer to $0 (though many banks will add that back).  Or after a loss carry forward it might be negative.  Or after deprecation of some capx from years back that you still carry, it might be negative.   Or you're buying distressed properties that need repairs and you sink money in and you're paid back via a refi vs pure cash flow.

If you just have multifamily, and no regular W2 job, there are lots of ways you can have little to no income while still being able to put down on a property over and over. 


Another way (I gotta go so I'm going to try to summarize).  Let's say you take that $500k and buy a $2m property with $400k down and invest $100k to fix it up.  You stabilize it,  it appraises after for $3m.   You take out a new loan for $2.4m.  Well your old loan was $1.6m.  So you have an extra $800k.  But you put in $500k so really it's an extra $300k more in your bank than before. 

Do that a bunch of times, and you could have a lot more in your bank, but that's not really "income".  You didn't sell anything.  It's a loan.

EVENTUALLY you're going to get wacked with taxes.  You can't do this forever as once you sell something (your cost basis will be low) and don't 1031 it.  Or once you stop growing and just sit on a bunch of stabilized cash flowing properties, you'll have tons of taxed income.  And then congrats you can finance a 1-4 family again. 

 Love reading your posts, Cody! Thank you so much for teaching us!