Evaluating an Apartment-Building Investment
Apartment buildings can provide rental income and exposure to changes in property value, but they also require management, capital, and the ability to absorb losses. Evaluate a specific property rather than assuming that buying is always better than holding cash or that a market recovery will occur within a set period.
A Worked Example, Not a Market Forecast
The following illustration recalculates this article’s original assumptions. They are hypothetical, not current Hagerstown prices, loan quotes, or expected returns: a $1,000,000 purchase price, $77,500 annual net operating income (a 7.75% cap rate on that price), and a $700,000 loan at a fixed 6.1% annual rate, amortized over 30 years with monthly payments.
- Down payment: $300,000, before acquisition and initial improvement costs.
- Annual principal-and-interest payments: $50,903.56.
- Annual cash flow after those payments: $26,596.44, before income taxes and any additional capital spending or reserve contributions.
- First-year principal reduction: $8,436.85. This reduces debt; it is not spendable rental cash flow.
- Cash flow divided by the down payment: approximately 8.87%. This is not a complete cash-on-cash calculation if additional cash was invested.
NOI should reflect realistic operating costs, including vacancy and collection assumptions, taxes, insurance, maintenance, and management. Total cash invested must include applicable cash-paid acquisition costs and initial improvements. See our cash-on-cash return guide for the distinction between cash flow, equity growth, and overall return.
Compare Risk and Liquidity
The earlier after-tax comparison is removed because its tax inputs were not established and its cash-flow and principal-paydown figures did not match the stated financing. Tax outcomes depend on the taxpayer and transaction. A property investment and a bank deposit also differ in liquidity, expenses, and risk; one hypothetical return does not establish which is appropriate for an individual.
Property values, rents, and collections can decline. A five-year holding period does not guarantee recovery. Review maintenance records, capital needs, leases, realistic financing terms, and a downside budget before committing. For local property information, contact Roberto Gonzalez.
Example recalculated October 30, 2026. General reference: Investor.gov on investment performance claims.
Archived Video
The original video below reflects earlier commentary; use the revised calculations and qualifications above when reviewing this example.
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