Cash Flow
If you’re thinking about buying apartment complexes, I recommend focusing on class C and D properties- the complexes in lower income, bread and butter neighborhoods. On these you’ll typically get $100 per unit in positive cash flow. For example, if you had a 10 plex that would be $1,000 a month in positive cash flow.
To calculate this you start with your gross income, then subtract your operating expenses for your NOI or net operating income. From that you pay your debt service, and are left with your profit.
This is a great rule of thumb but it doesn’t always work. Class A properties are the nicer ones- the ones with swimming pools and sports centers. But as they get older, and newer and nicer ones are built down the street, they become class B.
Communities
I don’t really like investing in those complexes. I like to find older properties that are more distressed, then fix them up. I like to tell my kids that we transform communities- we take run down properties and make safe, clean homes for people to live in. I take a lot of pride in creating communities for people, and I feel like for that I’m rewarded.
And there are some headaches- sometimes you have to deal with demanding tenants. But if you’re buying apartment buildings, most of the time you can get a large enough profit margin in there to hire a manager.
Houses
So we already talked about what kind of cash flow you should expect from apartment buildings- $100 per door. But what about houses? Right now is a great time to buy houses, and they can make you more cash flow than an apartment. You can easily get about $200 per unit. However, even though this appears to be “twice as much cash flow,” it’s really not as efficient as owning apartment buildings in the long run.
I have a 12 unit apartment building, but it would have been a hassle to take on 12 mortgages, deals, and closings. One complex, and one closing is a lot easier to take care of.