All depends on your investment thesis... (sorry for being a bit late to game here) Maybe 5% per year compounded growth is justified. But for smaller properties you are really bound by the fact that you are making a macro play. Even if you increase the NOI 20% it doesn't mean your property value will increase by 20%. For smaller properties, you may be able to do a substantial value enhancement if you buy a real dog and are able to bring up to average or a bit better than average and get out. With a trade background this is a possibility but limited by your capital or time availability which are big drags on return.
Macro play means that you buy an asset plop in tenants do very little improvement and hope the economy just lifts the value of your rents and property value. As smaller property, few options to forcibly increase value and cost of exit is about 4.5% of gross value whereas a larger building it is closer to 3%. So lots of disadvantages with smaller investments unfortunately.
There is truth to the above statement. That is; if you are indeed a more passive investor and buy and hold and not wanting to stand out and simply fill the place and collect rent and defer any (capital) improvements. It's a strategy you could follow. Many do. Don't necessarily like those investors as my neighbors, but understand there are different ways to get to where you want to be.
You probably won't even get the 5% compounded. But it could work as a safe savings vehicle with a return you are comfortable with over the long term.
But there are plenty of examples where it does work, with a lot of patience, research and definitely some luck you can find those real 'dogs'
For example I bought 2 4 plexes last year in a larger centre in Alberta. $330K each. They were actual lower then a 'dog'. Come to think of it; there probably is no name for such property.
6 units were empty, 2 others had $700 each come in.
Put in $80K in the one and 90K in the other. This brought actual purchase price to $410K and $420K.
Appraised close to 500K each and bringing in close to 100K in rents combined in 2017
Have had other such purchases in the past however this one I have to admit was outstanding.
But it is true that I'm doing this FT and although I don't do everything myself I save big time on labor and materials by project managing.
It does prove tho that it is possible to both improve NOI as well as your property value significantly at the same time.
