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How We Made Over $1.1M in 2.5 Years on a 42-Unit Apartment

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Here's the detailed breakdown of our most recent closing - a 42-unit apartment building which we bought just under 3 years ago (July 2019) and then sold for a $1.1M+ profit! (closed May 2022). A big thank you goes to my business partner Nate Barger and of course to our investors.

Acquisition: Why & How We Bought This (Hint: It Was Cheap & We Used OPM)

This 42-unit apartment complex is located in the Bond Hill area of Cincinnati. At first, I didn't want to buy another apartment in the area (it's a C area) but the broker persuaded me that there was so much potential in this property as the rents were $300/month/unit below market.

We purchased the property for $1,470,000. It needed about $362,000 in renovation and other soft costs. The rents were low, averaging only $625/month and we knew, we could increase the rents to $925/month.

We utilized $400,000 from private investors and we set it up such that we gave them a 6% pref (preferred return - meaning, they get paid first a set amount or percentage of their investment) AND a 30% profit share. That means, on top of 6%, they get 30% share of the cashflow in excess of the pref as well as 30% of the profit from the re-sale.

My partner Nate Barger and I then qualified for the mortgage at 80% LTC (Loan to Cost).

Renovation & Management Improvements

We actually spent $260,000 instead because we decided to renovate about 50% of the units. We put new blacktop on the parking lot, replaced some of the roofs, improved the landscaping and we took care of deferred maintenance items.

We also instituted energy and water consumption audits and we put in new fixtures, high efficiency toilets, and LED lights to reduce the operating costs. We also put in some automation and management controls to ensure the operating costs become more efficient.

Re-sale & Return to Investors

After demonstrating that we could increase the rents substantially across 50% of the units we decided to sell the property. Even without renovating all the units, over the 33.5 months we owned this property, we netted about $233,000+ in cashflow. We gave our investors 6% pref or $67,000 (33.5 months x $400K x 6%/12 months). We then gave our passive investors 30% share of the excess cashflow or about $50,000.

We got the price we wanted - $3,100,000 and in exchange, we gave the seller a credit for the remaining renovation needed plus buyer's credit for a total of $237,500 in credits. We also gave him about $66,000+ in rent, security deposit and tax prorations. He did a 1031 exchange so he got his equity from selling one of his properties but by giving him generous credits and prorations, he didn't need to bring much cash to the closing table.

Bottomline, after paying all the closing costs, prorations, buyer's credit, we got a check for $1,457,736. From this amount, we paid off our passive investors' capital of $400,000, giving us a net profit at re-sale of $1,057,736. Our passive investors then got 30% of that and when you add the pref and profit share of the cashflow, they get a total return of $434,000.

That means they MORE than DOUBLED their money in 2.5 years (equity multiple of 2.09x to be exact). Not a bad return for being TOTALLY PASSIVE!

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* Investing Involves Risk, Including Loss Of Principal. Past Performance Does Not Guarantee Or Indicate Future Results. Any Historical Returns, Expected Returns, Or Probability Projections May Not Reflect Actual Future Performance. While The Data We Use From Third Parties Is Believed To Be Reliable, We Cannot Ensure The Accuracy Or Completeness Of Data Provided By Investors Or Other Third Parties. Neither Eden Capital Nor Any Of Its Affiliates Provide Tax Advice And Do Not Represent In Any Manner That The Outcomes Described Herein Will Result In Any Particular Tax Consequence. Prospective Investors Should Consult With A Tax Or Legal Adviser Before Making Any Investment Decision.
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