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Interested in how I averaged 8.5% per year cash-on-cash returns (not including profits from the sale of my apartment complexes)?

Would you like to learn how I got a 21.5% annualized cash-on-cash return (IRR) after selling an apartment complex?

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In between deals, I invest in syndicates on Fundrise (here is our Fundrise signup affiliate link!)


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Real Estate Syndication Terminology

To familiarize yourself with the real estate syndication industry, here are some of the key terms you should learn:

100:10:3:1 Rule – How I Evaluate 100 Rental Properties in Under an Hour

I think the best practice for new investors is to learn how to run the numbers on potential property investments. I practice the “100:10:3:1 Rule” I read about again and again in all the real estate books I consumed those first 10 years.

100:10:3:1 Rule: To buy ONE real estate investment, you’ll need to run the numbers on 100 properties, makes offers on 10 of them, attempt to finance 3 of them, and finally buy ONE of them!

Running the numbers should only take you a minute or less. I’m not saying do a full underwriting for each one of these 100 properties you review. For those 10 you make offers on… YES, perform a complete due diligence with your team, but for the initial number crunching, I use these metrics:

  1. Cap Rate = Net Operating Income (NOI) / Total Purchase Price

The NOI is equal to your gross rent minus all of the property’s operating expenses (such as vacancy, management, taxes, insurance, repairs, HOA, etc. — these expenses DO NOT include financing/debt servicing).

For example, let’s say an apartment generates $60,000 per year in NOI and its total purchase price is $900,000… so $60,000 / $900,000 = a 6.67% cap rate (that is the unleveraged return). The cap rate is a quick way to tells us how much money a property makes AFTER expenses.  I typically require a cap rate be over 5-6%.

  1. The 1% Rule = Gross Monthly Rent is greater than or equal to 1% of the Total Purchase Price

For example, say an apartments gross monthly rent is $7,700 and its total purchase price is $900,000… 1% x $900,000 = $9,000… so our gross rent of $7,700 is NOT greater than 1% of the properties purchase price, so this FAILS the 1% rule.

Another way I tweak this 1% rule is to find the optimal “offer price” for this investment property.

OFFER PRICE = Gross Monthly Rent / 1%

Our offer price for this example would be $7,700 / 1% = $770,000… so if all your other due diligence checks out on this property, you would submit an offer of $770,000 and hopefully their counter-offer would save you a ton of money on this property, making the numbers work in your favor!

  1. The 50% Rule = Net Operating Income (NOI) is greater than or equal to (50% x Gross Rent)

For example, let’s say an apartment generates $60,000 per year in NOI and its gross rent is $92,400… so $60,000 = (50% x $92,400)… so $60,000 = $46,200

Our NOI is a bit higher than our 50% rule, which means more money for us… but it also may mean the seller is “fudging” on the numbers and further due diligence is required to insure all our expenses are correct.

  1. Cash on Cash Return = Net Income (after debt servicing) / Down Payment

For example, let’s say an apartment nets $30,000 per year income after ALL expenses (included debt servicing). Let’s say the seller counters with an offer of $800,000 for the property. My bank needs 30% down for this multifamily, so that is $800,000 x 30% = $240,000 down payment.

My Cash on Cash Return is $30,000 / $240,000 = 12.5% (this is amazing, what savings account will get you a 12.5% return!)

Start Investing With Just $500

In between deals, I invest in syndicates on Fundrise with as little as $500:


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