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In this video post, I want to demonstrate to you the incredible power of apartment buildings. By using a real case study, I'll show you how I added $40,000 per year to my net worth with a small 12-unit apartment building. I hope it will inspire you to take a closer look at multifamily investing to help you achieve financial freedom like it did for me and many others.

4 Ways Apartments Make You Money

I love apartment buildings because there are 4 ways to make money:

  1. Cash flow: this is the amount of money that is left after ALL expenses and mortgage payment.
  2. Appreciation: this is the difference between what you bought the property for and what you sell it for (minus expenses);
  3. Loan Reduction(aka “Amortization”): the amount by which your tenants paid down your mortgage balance; and
  4. Sponsor Fees: if you’re going to raise money for the deal (which you should!), then you are entitled to certain fees for “syndicating” the deal.

For example, you can pay yourself an acquisition fee when you close on the property (typically around 3% of the purchase price).

You can also charge an “Asset Management Fee” (typically 1% of the money raised each year you own the building) and an “Asset Disposition Fee” (typically 1% of the sales price when you sell the building).

Unlike any other investment in the world, apartment buildings have 4 profit centers.


Introducing the 12-Unit Case Study

I’m going to use my first deal as an example to demonstrate to you WITH REAL NUMBERS how powerful apartment building investing can be.

I use this particular case study because it’s the kind of FIRST deal that YOU can do ANYWHERE in the country. Even though this is a small deal (12 units), it still added $40K to my net worth EVERY year for FIVE years.

And I didn’t use any of my own money.

Let me show you exactly how this deal added $40K to my net worth every year for five years, and I hope in the process you’ll see that you, too, can do a deal like this.

Here’s how I bought the property:

After closing on the property, I renovated the exterior of the building and many of the units. This allowed me to slowly raise the rents, fill the vacancies, and evict non-paying tenants.

This wasn't an over-night process. In fact, it took about 3 years.

After 5 years (as I write this), I have it under contract to sell for $850,000. Overall, this building made me a profit of $198,434 in 5 years – or about $40,000 per year.

Let's break down each of the profit centers to better understand the “$40K per year” profit.

How This Small Apartment Building Made Me $40,000 Per Year

Here are three of the four profit centers:

The total profit from these 3 profit centers was $325,310. Since I have a 50% share, my portion of those profits are $162,655.

Let's not forget the sponsor fees!

In addition to owning 50% of the building, I also received certain “sponsor” fees for putting the deal together, managing the property manager, and eventually selling the whole thing for a profit.

I paid myself $15,900 at closing when I bought the building. I also charged an asset management fee of $2,275 per year (1% of money raised) and a 1% disposition fee of $8,500 when we sold the building.

All told, my sponsor fees totaled $35,779, putting MY net profit at $198,434 – about $40,000 per year.

What did I really do with this property?

I found a property with some problems that I felt I could fix in 3-5 years. I renovated the property, increased the rents, and reduced the vacancy.

Was this difficult?

Yes and no.

Yes because I had to take action. I had to educate myself, actually buy the property and hire the right property management company. And I had to be patient.

But on the other hand, it wasn't that difficult. Anyone could have done a deal like this. I bought it for fair market value, in other words, I didn't have to buy it at some kind of huge discount. People do deals like this all the time.

And I believe you can do a deal like this as well.

I can hear the skeptics getting ready to comment below. I don't want to hear it.

The only reason you're going to post something below like “it can't be done” and “you're making all of this up” is because you have limiting beliefs that multifamily won't work for you.

I've done it, and others have done it.

And I know you can do it too.

My hope is that by seeing real numbers on a real deal, you will be inspired to take a serious look at multifamily investing to help you achieve financial freedom.

Let me hear from you! Where are you in your real estate investing journey?


11 Responses

  1. This is awesome!!! can you share how you paid out to the investors annually? what did the returns look like for them? give the same level of detail that you showed for your take. I’m looking at a 16 unit right now and would love to do something like this.

  2. ok, so it was 50/50 on all net money, vs. say a guarantee of some sort to the investors of say the first 5% or so, correct? What about your reno capital? was that part of the investor money?

  3. There’s never a guarantee. And there was not a preferred return of 5% (or anything). The equity raised included enough for the reno capital … thanks!

  4. Hey Michael. Thanks for the great article and video! I am in the process of buying my first building and it’s a 12-unit as well. The rents are way under market and I can use my construction experience to make upgrades. The owner provided me a Schedule E for the income and expenses, but I cant figure out how to run the numbers to get the NOI and cap rate. I searched on Google but couldn’t find anything, so I thought I would ask the only expert I know. Thanks in advance for any help you provide. Great blog!!

  5. Michael,

    Thank you for all the value you provide. I’ve been involved in the digital world (ecom/seo/FB) for quite a while and have been successful running online businesses. I’m seriously considering getting into real estate and buying your course, since I have 20-30 free hours during the week. My question for you is…coming from 0 experience:

    1) Once you put in the work, how “hands-free” of an investment are these apartment buildings?
    2) With the proper team and systems in place, how quickly can you scale to $50-80k per month in net cashflow? (my target)
    3) Is it a good idea to own apartments for 15-20 years? (continuous cash flow)

    I’m also attracted to RE because of the tax breaks and inflation perks. I’m trying to decide between building more software/ecom stores (getting a little burnt out) or investing in RE for long term cashflow.

    Thank you Michael

  6. 1) Once you put in the work, how “hands-free” of an investment are these apartment buildings?
    Once you’ve stabilized the property and have a good property manager, it shouldn’t take you more than an hour per property per week (and that might be a high estimate).
    2) With the proper team and systems in place, how quickly can you scale to $50-80k per month in net cashflow? (my target)
    That depends entirely on you, your capabilities and drive.
    3) Is it a good idea to own apartments for 15-20 years? (continuous cash flow)

  7. Michael,

    Thanks so much for the great information! I currently have an investment in two hotels which, along with some IRA money, will go to fund my first apartment purchase. I have only one question which I need to understand.

    Q: How do you interview and find a quality property management company?

    Best, Mike

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