Cash Flow (Monthly Income)
Cash flow is the income remaining after all expenses and debt payments.
Includes:
- Rental income
- Other income (laundry, parking, fees)
- Minus expenses and loan payments
Investors typically receive monthly or quarterly distributions.
Appreciation (Property Value Growth)
Natural Appreciation
Driven by market conditions:
- Rising rents
- Increased demand
- Economic growth
Forced Appreciation
Created by the investor:
- Increasing rents
- Reducing expenses
- Improving operations
This is the most reliable wealth-building method.
Equity at Sale (The Big Payday)
When the property is sold or refinanced:
Typical structure:
- Investors receive their initial capital back
- Profits are split (commonly 70/30 LP/GP)
- Preferred return (~8%) is paid first
This is often where the majority of returns are realized.
Bonus: Tax Advantages
Multifamily investing offers strong tax benefits:
- Depreciation can offset income
- Cost segregation accelerates tax savings
- 1031 exchanges defer capital gains
These can significantly increase after-tax returns.
Example Deal Flow
- Investment: $100,000
- Annual cash flow: $8,000 (8%)
- Hold period: 5 years
- Profit at sale: $150,000
Total Return
- $40,000 cash flow
- $150,000 profit
- $190,000 total return
Final Thoughts
Multifamily investing combines:
- Income
- Equity growth
- Tax efficiency
Very few asset classes offer all three.
