Multi Unit purchase vs. Business purchase - ROI comparison

[Nick Rose]

Currently seeking more properties to purchase for cash flow, I also have done a high level investigation into purchasing a business.  I put together two scenarios based on using 150K toward down payments.  One is purchasing an apartment complex, the other is purchasing a business.    So many details generalities, I know.  However, there just seems to be very little cash flow when having to pay a debt service with multi-units.  I can find higher flow properties, but they are always much smaller and commercial lenders seem to shy away from smaller deals.   Anyone experience is business acquisitions want to weigh in?  Maybe I'm way off base?

*****Apartment complex (150K investment):

600K purchase price, 150K down (25%). Assuming a generous 10% cap rate = 60K income/year.

Debt service payment (450K, 4.9% rate, 20 year amortization) = -35,340/year

Cash flow = 60,000 (NOI) – 35,340 (debt) = 24,660/year

ROI = 24,660/150,000 = 16.4%.

More realistically, if cap rate is 7%, then ROI = 4.4% after debt payment

*No appreciation or debt payoff included in calculations

*****Business purchase (150K investment):

300K purchase price, same 150K down (50% down).

Net cash flow = 100K** (This assumes a conservative 3x multiplier)

Debt service payment (150K, 6% rate, 5 year amortization) = 35,600

Cash flow = 100,000-35,600= 64,400/year

ROI = 64,400/150,000 = 43%

After 5 years, debt is paid and income = 100K. ROI = 66.6%