Seven Million Dollar Apartment Building

[Alexander Parada]

$7,000,0000 Apartment Building one in Houston other in North Carolina. Deciding between both they both have similar numbers. 55-65 Units both C properties.

Alright guys Me and some colleagues are going in on a Multi fam unit. Its four of us and we have came up with the 25% Down Payment to purchase this prop. At $1,750,000 Down Payment lets say on this prop which has a 7% Cap. What would an acceptable noi at the end of year given the down payment you are investing with. I have read a cash on cash return from 10-14% is what everyone seems to be aiming for. But just wanted fo pick your brains on this one. Thanks in advance for the help / suggestions.

I know I can always look for value adds and things of that nature but I want to know what is the standard return you seasoned investors are seeking for.

[Michael Ealy]

Originally posted by @Greg Dickerson:

@Alexander Parada what @Michael Ealy is talking about is your return on investment over time. You could have a 100% CoC return but if it takes 20 years to get it thats actually only 5% return. Time value of money IRR and NPV are the most critical metrics to consider when investing.

As others mentioned most class C value add investors target IRR of 15-18% minimum but with the abundant supply of capital and competition these days we are seeing lower return thresholds for some investors.

Actually I am talking about the increase in property values over time and how that impacts the over-all return. Cash on cash is always expressed as annual % (so 100% CoC is 100% annual CoC) but IRR takes into account both cash on cash and profit from the sale.

I see a lot of newbie investors get too focused on cashflow or cash on cash return. BUT the danger with that thinking is that they go into bad areas (D & F) because those are the ones where you can get double digit CoC but it's very hard to manage and those double digit CoCs get eroded pretty quickly with unexpected capital improvements.

Lastly, being overly focused on CoC can also become costly in terms of opportunity costs. Managing buildings in D and F areas is a full time job and you can't pretty much do anything else. You buy a 20 unit in a D area and that's your full time job (even if you have a property manager) and you can't buy another building. So you lose out on someone buying a building in a B area with less cashflow but over time, he will have accumulated a portfolio of buildings with a lot more cashflow than your single, high maintenance, time consumming building.