Understanding debt financing - multifamily

[Antonio Pican]

After doing some hefty learning for the past several months I am failing to understand the described below scenario:

If I buy a multifamily property at 600k with 20% down and finance the rest at say 6%..after running numbers my cap rate comes out to about 8% and cash on cash return at about 43% (its 12 units at approx 575 monthly rent income, and the report shows 30k a year in expenses and 80k in gross. My concern though is using my net profit to pay the mortgage obviously and end up with about only 12k hard cash in my hand. But am I missing the point that I am building equity in the property with financing (paying payments) or making improvements to the property to raise rent and to be able to build wealth like that?

Thank you in advance for the clarification.

[Joel O'Leary]

Without the full calculator I can't say for sure... But here's a few thoughts:

- 120k downpayment (20% of 600k) with an annual hard cash return of $12k, works out to be a 10% cash on cash return. This doesn't account for principal paydown, tax benefits and all that extra crap.

- Are you worried that this return isn't good enough? What are your goals and do you have another option for your $120k that will yield a higher return?

- Just curious, does your calculator take into account property management, vacancy (at least 1 unit will probably always be vacant), and healthy maintenance costs?

- If you want I can send you a calculator that takes into account the principle paydown and rent increases year on year.

Good luck!

Joel