What type of ROI can I expect on a $2,000,000 MF?
Thank you for reading my post. Please let me know if I should be posting this in another category.
I'll start by saying that I am a newbie. Other than my primary residence I bought in 2011, I have yet to make any moves in the market and like many new investors I am scared to make my first move.
That being said I feel like if I can afford to, the right move to make is a big one. One address/as many doors as possible. I figure that a 2 Million dollar building with a few dozen units (maybe more) could be a target for my first investment.
Couple questions for those who are well educated in this space...
1- What type of NOI can one expect today on a property like that?
2- It seems like anything I have found listed online (Loopnet) claims to be in the 5-7% range. For a 1st time investor do you think is a 5-7% NOI is enough to tie up that much cash (20% down payment) on a 2M building?
3- How would you go about looking for a "good deal" (below intrinsic value) in this space? What cities?
4- Should I only be looking in the state I live in?
5- How would you go about perhaps finding a successful mentor that will help find and go in the deal with me allowing us to maybe buy more than one building together?
Thanks in advance for your input. I love this forum because I can hopefully get answers from experienced folks without having to attend local REI meetings and filter through the BS, the wannabe's, and the ones that are just their for prospecting. No offense to those meetings. I think they can be a great forum, but time is money and it is so frustrating for a newbie to break away from their family on a weekday evening to drive across town and attend one of these meetings only to leave more confused then when they stepped foot in the place and feel like they are back do the drawing board.
Originally posted by @Dmitri L.:
What type of ROI can I expect on a $2,000,000 MF?If you have to ask, it'll probably be negative...
Thank you for taking your time to make such an invaluable contribution to this thread.
No sweat!
@Justin Cabral Here is a recent blog I wrote that aligns/answers your questions very well. I hope you find helpful.
https://www.biggerpockets.com/renewsblog/how-the-wealthy-invest/
Thanks for sharing. I just started reading it and will make sure I read in its entirety.
I just have one question for now about the $1M apartment complex with 8% CAP rate example you start the article with.
Does the 80k NOI before paying the mortgage payment on 800k take into consideration the annual taxes you pay for owning the building?
Yes. As long as your referring to property taxes and not income taxes.
NOI= EGI - OE
EGI (Effective Gross Income)-The amount of income produced by a piece of property, plus miscellaneous income, less vacancy costs and collection losses. In simple terms it all the dollars you actually collect.
OE (operating expenses)- All the costs it takes to run the property that are not specific to an indivual owner.
To your question, no mater who owns it they will have to pay property tax and therefore it is a operating expense. A mortgage payment depends on the owner. One owner may pay cash and not have a mortgage another may get a 3% interest rate and another may take a 10%. because the mortgage payment expense varies depending upon the specific owner it is not a operating expense and therefore does not effect NOI.