What type of ROI can I expect on a $2,000,000 MF?

[Justin Cabral]

Thank you for reading my post. Please let me know if I should be posting this in another category.

I'll start by saying that I am a newbie. Other than my primary residence I bought in 2011, I have yet to make any moves in the market and like many new investors I am scared to make my first move.

That being said I feel like if I can afford to, the right move to make is a big one. One address/as many doors as possible. I figure that a 2 Million dollar building with a few dozen units (maybe more) could be a target for my first investment.

Couple questions for those who are well educated in this space...

1- What type of NOI can one expect today on a property like that?

2- It seems like anything I have found listed online (Loopnet) claims to be in the 5-7% range. For a 1st time investor do you think is a 5-7% NOI is enough to tie up that much cash (20% down payment) on a 2M building?

3-  How would you go about looking for a "good deal" (below intrinsic value) in this space? What cities?

4- Should I only be looking in the state I live in?

5- How would you go about perhaps finding a successful mentor that will help find and go in the deal with me allowing us to maybe buy more than one building together?

Thanks in advance for your input. I love this forum because I can hopefully get answers from experienced folks without having to attend local REI meetings and filter through the BS, the wannabe's, and the ones that are just their for prospecting. No offense to those meetings. I think they can be a great forum, but time is money and it is so frustrating for a newbie to break away from their family on a weekday evening to drive across town and attend one of these meetings only to leave more confused then when they stepped foot in the place and feel like they are back do the drawing board.

[Roy N.]

Originally posted by @Jason Hirko:

@Roy N. How would his NOI not change if he had debt service expense?

While technically the interest portion of your debt service could be included as an operating cost (at least for taxable income purposes), in practice all debt service is taken below the line (i.e. it is deducted from NOI, not before NOI).

How you finance a business does not change the net operating income produced by the business, but it does change the available cash flow before taxes (CFBT).