Target Cashflow Per Door on 20-50 Unit Apartments?

Question

I know this will vary greatly by market, but in general, what are people targeting for cashflow per door on mid-sized apartment buildings?

David Brent · Answer

That isn't really fair to say it's irrelevant.  It's just another way (among the dozens of metrics) to analyze a deal or your actual property.  I have a 24 unit property, and track CoC ann. trend and $ per door ann. trend monthly.

Cash on Cash formula is Cash flow/down-paymnt + fees.

Per door is Cash flow/number of doors.

In both cases the numerator is the same, changing the denominator just gives you a different way to look at it.  (and a simpler way to understand it for many.)

eg. my 24 unit makes CF of $60 annually.  Thats ~200$ pd/pm.   If that was a 30 unit, it would be ~165$ pd/pm.   If I paid the same $ for both sample properties, you are right, the lower cash flow per door for the 20 unit makes it look less attractive - but the CoC and IRR would be exactly the same (based on the $60k).  So I see that point. But f we play that out, and make it a 100 unit with that same $60k CF, the pd/pm is just $45 - even though your CoC and IRR is the same.   I'd rather ONLY manage and R&M 24 tenants than 100 any day.  So there is SOME value in using $ per door as ONE of many metrics to look at...

Greg Dickerson · Answer

Return per door is irrelevant. It’s all about return on investment over time and velocity of cashflow. Cash on cash and IRR are the metrics you need to focus on not doors.

David Brent · Answer

Of course - it depends (on income, expenses and debt service size based on what % you put down and rate, and importantly, on whether the goal of the property is cash flow (C&D markets) versus Property appreciation (A&B markets).   For example, buying apartments in San Francisco may NOT have any cash flow per door, but over 5 years the goal is return on the value of the property based on appreciation.

That said - when I run my deal screening calculations, I look for cash flow per door of no less than $150, ideally $200+.

Danny Randazzo · Answer

@Matt Jennissen I agree with @Greg Dickerson you should just review your underwriting to determine overall return on investment and other property level return metrics. If you feel inclined you can always divide by number of units to get a per door stat.

Hai Loc · Answer

@Matt Jennissen

So many variables..

No one size fits all answer

If someone said $60 or $100 they have no clue what there are talking about until you know most of the metrics

Building class

Area class

Unit sizes

Unit configuration

Utility payment responsibility

You can always have expectations

Jonathan R McLaughlin · Answer

Agreed with everyone above, its probably not the most efficient way to think about it, but it is a fun one to see incrementally creep up :)

I think at that size and b/c ish condition in a solid but not "premier" market, with some turnover rehabs the numbers people are talking about usually work out above $200/dr

Eric Johnson · Answer

Some other really good points were made. Cashflow per door is one metric to look at. If you want it to be a criteria for acquisitions, you can. Same with any other metric, they are all subjective in the course of action an investor takes. That being said, targeting $150-$200/door is realistic for a C+/potentially B- asset. Assuming some conservative underwriting.

Marc Rice · Answer

All buyers vary, but most want 8-10% CoC or 7-8% cap rate minimum. It depends on what other options you have to invest in really.

David Brent · Answer

Sorry - I thought you meant raise funds from outside investors.  No.  But i DID get loan (35/65) at under 4% from regional bank.

David Brent · Answer

@ Matt - individually through LLC.

Target Cashflow Per Door on 20-50 Unit Apartments?

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