I asked Michael Blank to tell me about his first apartment deal.
Hey Michael, tell us the nitty-gritty of your first apartment building deal. We have a lot of people excited, but we want to know how it actually works.
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’ll 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 just an example of a small deal (12 units), it still added $40K to my net worth EVERY year for FIVE years (without using any of my own money).
Here’s how I bought the property:
— Source: MLS (listed by residential broker)
— Purchase price: $530,000
— Renovations: $54,000 (or $4,500 per unit) – it needed a lot of renovation.
— Cash needed to close: $227,000 raised from 5 investors in return for a 50/50 split.
— Projected Returns: 15% per year for the investors
— Acquisition Fee: $15,900 payable to me.
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 took a REALLY LONG TIME … like 3 years.
After 5 years, 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.
How is it possible to make $40K per year with such a small building and with none of my own money in the deal?
Let me break it down for you by profit center:
— Cash flow over 5 years was a total of $130,545 (after all expenses and my fees). That’s about $181 per unit per month. Cash flow was tight the first couple of years, but it picked up in the last 3 years (as we raised the average rent from $595 to $825).
— The Appreciation was $146,500 after closing and sales costs, and NOT including loan repayment and sponsor fees.
— Loan Reduction: the loan principal was reduced by $48,265 in five years.
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.
You might ask: “What about the $15,900 acquisition fees that I pay myself at closing?”
Oh, I almost forgot …
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.
It wasn’t rocket science. And any Traction REIA can do this too.
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. It wasn’t rocket science. It required some knowledge, taking action, and hiring the right property management company to execute on the plan.
If you feel a bit overwhelmed by the numbers, just take a deep breath.
And make sure you don’t miss the main point:
I think apartment buildings (even smaller ones) are the single best way to create passive income and long-term wealth so you can do whatever you want in 3-5 years.
OK, I hear you saying “That’s great, Michael, but if I’m doing the math right, each unit cash flowed $181 per month and my share is half that. That’s only $1,087 in total cash flow per month. How in the world is THAT going to let me retire in 3-5 years ?!?”
That’s a good point.
By itself, it won’t.
But stick with me for just a bit longer and you’ll see how it will.
Let me paint you a picture of how this first deal leads to your ultimate goal of retiring in 3-5 years.
Let’s first understand how the 4 profit centers break down by unit and by month:
While each unit produces $91 per month in passive income for you, it also produces $50 in fees and $135 of profit (appreciation + loan repayment) per unit per month.
That means each unit is adding $276 to your net worth every month.
So far so good, right?
Please keep in mind… this is only your first deal.
And I can tell you from interviewing dozens of new and experienced multifamily investors, that what they have shared with me, time and again is:
It’s All About Your First Deal!
Everything else happens much easier (and almost automatically) after that.
REMEMBER THIS EXCELLENT POINT.
I’ll tell you all more that Traction REIA next week.
Awesome. Looking forward to it!
Michael is with us for ONLY 1 APPEARANCE at the main Traction REIA next week.
So don’t miss it.
Works nationwide. Join us from anywhere.
Traction REIA Main Monthly Meeting
TOPIC: “How to Get Started With Apartment Investing Without Experience or Cash”
SPEAKER: Michael Blank
Thursday November 19th at 6pm Eastern ONLINE using Zoom.
See you there!
11+ Year Recipient of the National REIA “Honors of Merit”
and the “Award of Excellence”
For Best Real Estate Investor Association!