Total annual return on investment after sale of a building
I'm verifying that my "accounting" is sound. I recently sold two buildings that we held for exactly 7 years. I'm doing the old "Did I do better than if I'd left the money in the bank" calculation and I want to run my calculation by a few of you to be sure I'm good.
Building 1: 11 unit, held 7 years
Purchase price: $180,000
CAPEX $75,000 (mostly first year, but some throughout. We actually borrowed $40,000 of this 74,814 with the building)
TOTAL $255,000
So...Now we need to know what WE put in for money. This is the amount that we would've put in the bank had we not bought this building. In this case, down payment + closing costs was $61,240. THIS is the figure we need to know the performance on.
So...moving on...
Our cash flow over 7 years was $214,000 or $30,571 per year but we self managed. So to keep things "honest" I'll deduct 8% per year for a phantom management fee which reduces our cash flow to $171,000 over 7 years or $24,428 per year. So roughly $6,000 mgt. fee is what we got paid to do a "job" while the $24,428 was part of our total return, a "dividend" if you will.
Now, we sell the building ....
I'm not going to go into what we walked out of closing with because that's a product of what we owed, etc. But we sold the building for $380,000 and after our closing costs our profit was $125,000. (380,000 - 255,000~). There were very little closing costs for my part (sale by owner, few hundred in lawyer's fees, etc.)
Going further, adding our cash flow to our profit gives us ending number of $296,000 over 7 years. Running it through an online ROI calc, it yields 25.5% per year for 7 years. Better than most hedge funds and certainly better than I could've done other than getting lucky with Bitcoin or putting it all on Amazon at the end of the financial crisis. Worst case, I'm a little off with closing costs, but even if I'm 2-3K off, my return is still over 23%.
(In the same deal we also sold a 2 unit for more than double our purchase price + rehab but because it was an all cash deal, we only made 16% on our money year in and year out for 7 years. It's amazing what leverage does when everything goes right. We made FAR less on the 25% ROI deal but because it was financed our percentage return was far greater.)
Any thoughts or guidance on a simpler or more accurate way to guage, please opine!
And Happy Thanksgiving everyone!!!