How Much Money Can You Make From An Apartment Complex?

Before you buy an apartment complex, it is important to know whether it is profitable. Owning an apartment complex closes the line between a career and an investment. On one hand, it takes a meaningful amount of money to purchase an apartment complex and the money you make from it is related to how much money you invest in it. On the other hand, investing in an apartment complex can be more involved than owning other assets such as bonds or stocks.

The capitalization rate

When you have no debt on your building, what you make is equal to your collected income less the expenses. If you collect five hundred thousand dollars in rent and pay three hundred thousand dollars in expenses, you will make two hundred thousand dollars.

A lot of investors measure income from their buildings relative to the value of the building with a capitalization rate metric. You start with a net operating income to calculate a capitalization rate. The net operating income subtracts your operating expense from the recurring income.

When you add up all the collected rent and the total income and subtract your operating expenses from the total income, you will find the NOI. The operating expenses include everything spent to run the apartment building but it excludes all the major capital expenditures that you make to extend the life of the building or increase its value of the building. After having the NOI, you divide the value or price of the building into it.

Return after mortgages

This is another important thing you should know before investing in a property from a property buy-sell online platform. If you have a mortgage, your profit or return is not the money you get in your NOI. It is what you have after making mortgage payments. To calculate your total afterdebt return, you will have to divide your net cash flow by the down payment you made.

If you put $700K down on a $2.4 million property, you will owe $1.7 million and if your annual debt service was #130K and you took it out of the $200k NOI, you will end up with a $70K annual cash on cash. This means you will end up with a ten per cent cash-on-cash return.

The profit you make on sales

When you invest in an apartment building, you hope to make a profit when you sell it. There are different ways this can happen. An apartment building gets sold based on the cap rate. This is effectively a multiple of the total income it produces.

If you increase the total income of your building by raising rent or cutting expenses, you should be able to sell the property for a profit. Tahis means that when you sell in a good market and improve the quality of the property, property buyers may be willing to purchase your building at a lower multiple of earnings. This way, you will get additional profit once you buy apartment complex