Making Money in Multi-family and Apartment (5+ units) Investment - Real or Myth

[Anant B.]

Hi I am relatively new to Real Estate Investing and have been mostly buying buy and hold properties for rental income for past 9 months or so in Chicagoland area - primarily in suburb areas. Have acquired a few SFR / Duplex properties with my partner. At this point exploring the idea of investing in multi-unit / apartments with 5+ units. We saw quite a few apartments in last few weeks and and to be honest are attracted by relatively low prices of entry. In few cases some modest to gut rehabs are necessary as well. But the main stumbling block my partner and I are facing is can we really generate decent cash flow by acquiring these 5 - 8 unit buildings. Here are some example numbers we ran through and figured out Cash Flow is really not that attractive at all and probably we are better off sticking to SFR/Duplex investment for Cash Flow.

1. Building 1 : 6 Units ( 5 2BR + 1 1 BR), Purchase Price: 120K, Rehab: 100K

Rental Income: 55K Annual, Taxes: 10.5K, Ins: 2.5K, Utlities: 12K, Vacancy/Reserve/Maintenance: 5% each, Property Mgmt: 8%(about 12K) 

Operating Expenses: 37K

Gross Operating Income without Debt Service 18K, Cap Rate: 8%

Net Operating Income with Debt Service: 6K, CoC Return - 11%

Net Cash Flow Per Unit Per Month: $80/month

2. Building 2 : 7 Units ( 6 1BR + 1 Studio), Purchase Price: 120K, Rehab: 70K

Rental Income: 47K Annual, Taxes: 8.2K, Ins: 2.5K, Utlities: 11K, Vacancy/Reserve/Maintenance: 5% each, Property Mgmt: 8%(about 12K)

Operating Expenses: 32K

Gross Operating Income without Debt Service 15K, Cap Rate: 8%

Net Operating Income with Debt Service: 5K, CoC Return - 12%

Net Cash Flow Per Unit Per Month: $60/month

Compare these metrics to SFR Investment where I can generate about 350 - 600 /month cash flow per unit with Cap rate of 12% or greater and CoC return of 18% or more.

Is there something wrong with my numbers - the way I arrive at them? Or is it the reality in apartment/multi-unit investing that we have to come to terms with.

Thanks for your insight or feedback or experience that you may be able to share.

Anant