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What kind of returns do you look for in small apartment buildings..

Myron Bas

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Dec 12, 2016
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Hi, I am looking at a 8 plex in Edmonton, near college etc.. What kind of cash on cash returns have you aimed for with success in this type of town? As well as ROE? What are the lowest returns on multifamily you would accept?
 

Cory Sperle

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Buying a multi that size in Edmonton will have no cash flow unless you put more than 50% down and manage yourself. Be careful as the down cycle will last at least another year and your rents could fall even farther than they are now. If you manage to get a 75% loan (rare), and you pay less than 85K a door, and the place is in reasonable condition and you manage it well it's reasonable to double your equity in 5 years.
 

Thomas Beyer

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5% CAP rate is normal yielding 10% overall yield counting mortgage pay down, very modest value growth and assuming cash flow re-invested into upgrades, assuming 25-30% down.

What is better: Cash-Flow or Maximum ROI ? http://myreinspace.com/threads/what-is-better-cash-flow-or-higher-roi.26596/
Cash-flow does NOT make you rich, but it allows a sustained ownership. Appreciation and mortgage pay down is where you get wealthy. A market with no upside - especially as a young person - ought to be avoided in my opinion. Others may differ in their worldview.
 
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Thomas Beyer

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Buying a multi that size in Edmonton will have no cash flow unless you put more than 50% down and manage yourself. Be careful as the down cycle will last at least another year and your rents could fall even farther than they are now. If you manage to get a 75% loan (rare), and you pay less than 85K a door, and the place is in reasonable condition and you manage it well it's reasonable to double your equity in 5 years.

Good insight in here. Unless very low leverage cash on cash ROI does not exist in multi-family as all cash is usually re-invested into in-suite or exterior upgrades, yielding higher rents and/or higher value but not cash flow. Also see the chapter in my book on “cash flow myths” and article linked above.


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com
 

Cory Sperle

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A few other points of consideration, 8 units will qualify as commercial so your looking at fees that include reports (appraisal, engineering, phase 1), as well as mortgage related fees that will likely exceed $20,000 so you will be in an instant negative equity position, and the fees are virtually the same whether you buy 8 units, or 30. Combined with the fact that most projects have a large degree of deferred maintenance that the seller is hoping to pass off to the next investor. Seller motivation these days also is a factor of increased difficulty obtaining or refinancing mortgages, and seeing their equity shrink with a combination of decreased rents and increased expenses. That said provided you have a long term horizon of 10+ years you should do fine. MF product prices have fluctuated wildly in the past 10 years, almost ridiculously so, to the point where economic fundamentals mean less and less but if you land a deal at the right price you can still do quite well. Generally speaking short term investors who bought before 2007 did quite well, those from 2007 to 2009 are likely struggling, from 2010 to 2013 also did well, 2014 to 2016 struggling, 2017 ...?? will do well. I purchased two buildings in 2016, and two in 2017, and prices are clearly still trending down. An 8 plex is often a much crappier investment than 3 newer townhouses, and although generally speaking MF will outperform single family, there are many cases where it does not, and the jump from SF to a smaller multi is where many investors seem to get burned.
 

Marnie

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Oct 6, 2016
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Myron, have you considered investing in the REIN multi-family home study course? I think you would find it extremely useful. The course includes audio, templates, systems and tips which will expand your education and the knowledge you're already gaining. As an added bonus until December 17th, during our 25th Anniversary Sale you will save $100 on this course. Click HERE to sign into your Member Back Office and check out the course and the anniversary sale.
 
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