Breaking Down A Multi-Unit Investment
While past performance is no guarantee of future performance using the purchase of a typical twenty unit multi-family dwelling today at $2,500,000.00 this investment would work out approximately as outlined below:
Purchase Price (20 units $150,000.00 each unit) $3,000,000.00
Down Payment (25%) $750,000.00
Land Transfer Tax $61,475.00
Estimated Lawyer’s Fees Approximately 1.5% $45,000.00
HST on Lawyer’s Fees Approximately 13% of Fee $5,850.00
Approximate Cash Required by Buyer $862,325.00
Yearly Income Approximately ($1,400.00/Unit/Month) $336,000.00
Estimated Vacancy & Bad Debt (5%) $16,800.00
Net Yearly Income Approximately $319,200.00
Historical Average Yearly Capital Gain 5.2%
Estimated Average Yearly Capital Gain 4.0%
Estimated Yearly Capital Gain $3.000,000.00 X 4% = $120,000.00
New First Mortgage at 4.5% Amortized 25 Years $2,250,000.00
Yearly Payments of Principal & Interest $149,446.00
Mortgage Principal Paydown $50,140.00
Estimated Yearly Property Tax Payment Approximately $41,250.00
Estimated Yearly Property Management (7% + HST) $22,344.00
Estimated Yearly Repairs & Maintenance (8%) $25,536.00
Estimated Utilities Approximately (20%) $63,840.00
Estimated Insurance Costs Approximately $4,500.00
Estimated Snow Removal/Landscaping ($150.00/month) $1,800.00
Estimated Garbage Removal ($200.00 per month) $2,400.00
Total Expenses Approximately (92.6%) $311,116.00
Net Profit Before Taxes Approximately ($336,000.00 – $311,416.00 = $24,884.00
Return on Cash from Cash Flow $24,884.00 / $862,325.00 investment = 2.9%
Return on Cash Mortgage Principal Paydown $50,140.00 / $862,325.00 = 5.8%
Estimated Average Yearly Capital Gain $120,000.00 / $862,325.00 = 13.9%
Potential Return on Cash All Sources 2.9% + 5.8% + 13.9% = 22.6%
Note: In 25 years the property would be paid off by the tenants
At an average of 4% per year capital gain, it would be worth about $7,997,550.00
You would earn around ($24,884.00/year X 25 Years) = Cash Flow $622,100.00
Your initial $862,325.00 investment would have earned about $8,619,650.00
Each investment return will vary depending on the purchase price, actual income and expenses, and potential average yearly capital gain. Each property, therefore, needs to be fully investigated on its own merits before any decisions are made.
