19 yr old: What is wrong with my ROI calculations 55-100% ROI/yr?

[Devon Rollison]

First off for some reference before you get into the Example: As you know there are at least 5 different possible "sources" of income when buying any kind of Apartment, multi family or single family real estate deal. 

3 of them are recurring and passive profit each year #1 Cash flow, #2 Principal paydown ,#3 Appreciation. 

The other 2 are not recurring and not passive #4 Bought Below Market Value , #5 Other Value Adds (Not Renovations).

Now this example is just laying out what based on my knowledge, how much each one of these "sources" of income have the possibility to return.

I.e #1 Cash flow, it is a very known fact that you can get 7%-10% ROI I.e 7-10 CAPs. Therefore I know I am 100% right with how much ROI Cash Flow can bring in (7-10%/yr ROI).

Now, what are the known ROI's for the other 4 "sources" of income? This is what I am trying to find out for certain.

What do you think about the possible ROIs I suggest in my example, because to my knowledge they are all very possible, and some if not all are even somewhat conservative.




Ex: Purchase Price: 75-100 unit @$4m PP, $1m down

ACCURATE CONSERVATIVE RETURN NUMBERS FOR APARTMENTS (Can apply to Single and Multi Family as well):

Income #1)Cash flow:@7%-10% ROI =$5.8k-$8.3k/month =$70k-$100k/year

Income #2)Principal Pay Down: @33% minimum of $3m-$4m mortgage ($15k/month mortgage) =$60k/year

Income #3)Appreciation: @2% of $4m PP =$80k, @3% =$120k, @4% =$160k

Income #4)Bought Below Market Value: @5% of $4m PP =$200k, @7.5% =$300k, @10% =$400k

Income #5)Other Value Adds (Not Renovations): @2% of $4m PP =$80k, @3.5% =$140k, @4.5% =$180k, 7% =$280k

Total Yearly Reoccurring ROI On $1m:

1)Cash flow =7%-10% ROI

2)Principal Pay Down = 6% ROI

3)Appreciation =8%-16% ROI

Total =21%-32% Yearly Recurring ROI ($210-$310k On The $1m Down)

Total One Time Only ROI:

4)Bought Below market Value =20%-40% ROI (@5%-10% Below)

Total =45%-72% ROI ($450k-$720k On the $1m Down)

5)Other Value Adds =10%-28% ROI (@2.5%-7% Value Add)

Over All Total ROI =55%-100% ROI ($550k-$1m On the $1m Down)

#1 is 100% possible 

#2 is also 100% possible

#3 is also 100% possible when talking long term and not being stupid/bad

and so are #4 and #5 honestly as far as my knowledge goes, just seems way to good to be true ofc.

As well as basically no taxes paid on all of it... (Property tax write offs alone =$70k/year, and cash flow is the only taxed income when doing everything properly so the $6.7k-$8.3k/month Taxable Cash flow = basically 0 taxes paid with just ONE right off/tax savings method)