This Property Could Replace Your Salary

Added: 2026-05-30

[00:00:00]So, I just bought this 24-unit apartment building that currently cash flows $5,000 a month, and in this video, I'm going to be showing you how I found it, how I analyzed the numbers, along with a couple of things I wish I knew before starting this process. Because, believe it or not, this deal took 9 months to close, and it was all due to mistakes that I made in working with banks and the financing. Now, for those of you that may not know me, my name is Daniel Kwak. I'm a real estate investor that started with negative dollars in my bank account at 18 years old, and eventually scaling to an eight-figure multi-family port folio. Meaning that as I share this story on how I acquired this apartment building, I'll also be sharing with you formulas, key terminology that I believe every real estate investor has to know, and a few really big mistakes that I made, which I'll share towards the end of the story. Now, the way the story starts is how I found this building, which is very contrary to a lot of what other, you know, online gurus and influencers say on how to find buildings. I didn't find it through an auction or through a sheriff's sale, or, you know, cold calling sellers, and I definitely didn't do it driving for dollars. Which, for those of you that don't know, driving for dollars is when you drive around the neighborhood, and you look for signs of an absentee owner.

[00:01:05]Now, an absentee owner is an owner that does not live in the property, and some signs of that, and what people typically look for when they drive for dollars, is stuff like the grass hasn't been cut in months, you know, a mailbox full of mail, right? And all these things point to being an absentee owner. Now, the reason why a lot of these investors look for absentee owners is because, well, if the owner doesn't live in the property, and obviously a lot of these things have not been addressed, they're more likely to sell the building cuz it means chances are that property is very low on the list of priorities in their day-to-day life. Therefore, they're probably going to be willing to let it go for a lot less than what it's actually worth. Now, the multi-family version of this, cuz obviously we're talking about a 24-unit building, is what I look for is lack of maintenance, and really just a lack of TLC. Because that tells me, based on my experience, one of two things. Either the landlord and the owner is really old and they're just not within their own strength to continue to manage or take care of the property or they've kind of just neglected it. Or they're a bigger investor who owns a larger portfolio and this property is very low on their list of priorities or ones that perform well.

[00:02:13]In fact, one eight unit that I bought about 10 years ago, the owner showed up to closing wearing a Patek Philippe which for those of you guys that are avid watch collectors, sometimes those Patek's can go up to a hundred thousand dollars per watch and it was very clear that he just didn't care about this eight unit building because he had so many other buildings in his portfolio.

[00:02:33]Both scenarios are awesome cuz chances are they're not going to really give you a whole lot of resistance when it comes to negotiation portion and you'll be able to get the terms and the pricing that you want in order for a deal to be a good investment. Now, in terms of how I found this particular property, I actually found it on a website called Crexy.com which is a public platform where a lot of sellers post their listings for sale. Now, this one did have a broker attached to it. So, usually when I see a property on places like Crexy or LoopNet which I usually funny enough try to stay away from those sites cuz chances are a lot of those individuals that are trying to sell on there, they've already talked to a wave of buyers before putting it on websites like this. But, usually when I do find a property that I actually am interested in, I usually contact a broker if there is a broker right then and there and I look at the financials right away because I want to see how their asking price stacks up against the actual financial performance of the property of itself. So, what I started doing is I started pulling up the P&L. I started posting up what's called I started looking up what's called the T12 which for those of you guys that don't know stands for the trailing 12-month report which just outlines, "Hey, here are the income and the expenses for the last 12 months." Hence, the trailing 12. And I also look at the rent roll cuz I want to see where the occupancy number is at which the occupancy number is, hey, if there's 20 units, how many of those units are actually occupied? So, there's the occupancy rate, and the opposite of that is the vacancy rate. As in, what is the percentage of units that are vacant in that property? But, after looking at the numbers, I saw that they were really, really solid, and which we're going to talk about here in a moment.

[00:04:10]But, what I did afterwards is schedule a site visit, but also schedule a call with that broker to ask some of my preliminary questions. Which, usually those questions are, hey, why is the seller selling? I want to know the real motivation as to why they're letting a property go, because, well, if I ask that question, that potentially opens up some maybe creative [snorts] options that I could exercise. Which, I love creative options when it comes to acquiring a property, cuz usually that means the seller gets to have their price, but I get to have better terms for my limited partners and my investors. Now, that said, let's go ahead and talk about the numbers. I'm actually going to give you guys a full breakdown here in a moment, but let's start with the asking price, because initially when we looked at this deal, actually a total of 54 units separated into two buildings. One was a 30-unit, and one was the 24-unit. And, as you guys could guess, we actually decided to not pursue the 30 units at this time, and only pursue the 24-unit building, because it was just better performing.

[00:05:06]And, this property was actually about 4 hours and 15 minutes from my headquarters office here in St. Charles, Illinois. So, we decided to, hey, like, let's just go for a smaller one that's obviously a lower-hanging fruit and much more of a guarantee. And, we ended up buying this building for 1.45 million. Now, if we're getting to the actual numbers, well, there's two things I always encourage real estate investors to try to figure out as a core metric before you start getting into the other numbers. And, those two things are cash flow and cash on cash return. So, starting with cash flow, the formula for this is your gross income, which is the total rents that you collect, minus any operating expenses. And, those operating expenses are stuff like taxes, insurance, utilities, management, you name it. And also subtracting debt service. And that's obviously the mortgage payment that you're going to be making every single month to the bank.

[00:05:58]Now, the cash flow in layman's terms is pretty much the money that you take home after all operating expenses and after really anything that you need to pay out has been paid. So, that's the money that, you know, clothes on the kids' back, food on the table for the family.

[00:06:14]Now, my rule of thumb typically, when I coach other real estate investors, which I have been doing now for the last 8 years across the country, is I always try to get at least $200 per unit per month. Now, the second primary metric that we look at is cash on cash return, which the formula for that is your cash flow divided by the initial investment.

[00:06:35]So, if you're using your own money or using a different investor's money to obviously invest in a deal, and let's say you're investing $100,000 and this property produces $12,000 in cash flow, well, you take that 12,000 divided by the 100,000 initial investment, then you get 12%. Now, there's two different types of cash on cash return that are really important to understand. The first is your acquisition cash on cash return. And that's what your cash on cash return is in the beginning when you first buy the building. Now, your stabilized cash on cash return, which is the second one, is what your return's going to be after you've implemented your strategy. So, for example, if you're buying a property, and let's say the cash on cash return the first 6 months is only like 6% annualized, but you're planning on raising the rent and adding more value, and you're just doing anything you can to increase the income on that asset, well, obviously that increases the return, but it also increases the value. Because obviously, if a product or an asset is producing more net revenue, it's just by nature going to have a better return, and it's going to be worth more. Now, this is a primary strategy that I've used for years and years and years, which I love finding, you know, permanent buildings where the landlord is actually charging less per rent than other apartments very, very similar to that building, and they're charging more. Because for me, that tells me, well, if I buy an apartment building and this guy has a two-bedroom, one-bath, and all the attributes are the same, but he's charging 800 bucks, and the guy down the street is charging 1,200 bucks, well, that tells me I can safely raise my rent to $1,100 and make 300 bucks that all goes to my cash flow or my bottom line. So, obviously, there's a lot of big value there. Now, for my acquisition cash-on-cash return, as a good rule of thumb, I like to be at 5 plus percent return. Now, if we're talking stabilized, which is obviously after I've implemented my strategy and added a ton of value, I like to be at about 12% or more. In the past, my deals have actually been 18% or higher, just because I'm actually usually really, really picky with type of deals that I do in real estate. Now, that being said, if the cash flow and the cash-on-cash return are both good, they meet my rule of thumb, or obviously, hopefully higher, that tells me it's a great opportunity for me to pursue. Now, that being said, now let's get into the specifics. If we're looking at this particular deal, let's start with the gross income. Now, with this 24-unit building, there was actually two different streams of income. Obviously, the first one is the rent that you collect. But the second one was actually the laundry income. So, we had some laundry machines in there, and they were kind of underperforming, which actually gave me a pretty good idea as to what I could do the first 90 days of me owning this thing, and the total revenue for the last 12 months when I underwrote this building was $211,503.

[00:09:32]So, again, that's the gross revenue.

[00:09:35]That's how much rent was collected for the last 12 months, $211,503.

[00:09:41]Now, moving on our operating expenses, which are like taxes, insurance, utilities, and I'm actually going to do you guys a favor. I'm going to put all my underwriting notes, the my actual notes that I had, typed out in a document. Look for it in the description below. That's going to include the gross income, also all the operating expenses that I had to account for, and then obviously my math as a result of all of these things, right? But for the all the operating expenses for the year, the last 12 months, the expenses were $91,808.85.

[00:10:10]Again, if we're talking all the operating expenses. Now, I'm going to share with you one thing that I think is incredibly important, especially if you're interested in real estate and you're looking to do a deal, or maybe you've done one or two deals, and you're still kind of in that beginner rookie mindset, is verify your expenses. I cannot tell you how important that is.

[00:10:29]For example, if you guys are verifying, if you look at, you know, the the T12, and you're looking at the operating expenses, and you see the taxes were $30,000 last year, well, you can easily verify that by going on any county website. Just look up, you know, X County Property Tax Assessor's Office, and you'll be able to find it in 15 seconds. All you have to do is just type in, you know, the address once going onto that website, and you're going to see who the actual owner is, and you're going to see how much that owner paid in taxes for this particular asset, pretty much any given year you want, going back to 10, 15, 20 plus years. And you're able to verify on whether or not the seller claiming 30 thou And you're able to verify if the expenses are actually true. And trust me, it's been more than once where the seller actually downplayed the taxes to try to make the property more to try to make the property more appealing and worth more, which obviously is not a good sign. And if you're also looking at other expenses and verifying them, like utilities, right? One thing that I made a mistake of very early on in my career is I asked for a copy of the bill for utilities, but I didn't think about what month it was cuz obviously if you're in the Midwest, well, we can have winters as cold as minus 18° and we can have summers that goes up to 100°. Now, if you're thinking about let's just say gas, right? That's one utility. Take a guess at what the gas bill is going to be in the differential between January, which is a really really cold month, versus like August or July, which obviously they're very very hot. There's a massive difference and sometimes those bills could be the difference could be thousands of dollars cuz obviously, you know, gas during January, February, you're going to use more cuz it's colder and you need heating, right? So, when you verify these expenses, especially with utilities, I always ask for, "Hey, give me a copy of the utility bill from December and August." That's going to give me a really really good range of what I should expect based on the seasons. Now, if you're in places like Texas or Florida and you guys pretty much just get the same weather every single year, ignore what I said pretty much the last 40 seconds. But obviously, that's an example of how to verify each and every single expense because for what you don't verify, it will absolutely come back to bite you in the butt. Now, this is where we go ahead and calculate our NOI. NOI is net operating income and it's pretty much your income after all your operating expenses have been paid. So, obviously in this case, we have to take our gross income of $211,503 and we have to subtract it with our operating expenses of $91,808.85, which comes out to $119,694.15.

[00:13:18]That is our net operating income. Now, in calculating our cash flow, obviously, this is where we now get into debt service and we can talk about financing.

[00:13:27]Now, there's two really, really big mistakes that I made in doing these deals. And by the way, even as a 10-plus year veteran having skilled an eight-figure portfolio, like I still make mistakes to this day cuz I'm always learning. Like one thing I've always I've told Like one thing I told myself I'll never stop being is a student of the game, right? So, I'm always learning, and hopefully you can learn from my mistakes so you don't have to, you know, stress out about it like I did, right? Now, uh once we get the NOI, we now have to get into the financing and calculating our debt service, right? So, uh what I did is I actually ended up calling up a bunch of local community banks around uh this property and also in the state that this property is located in. And in hindsight, I wish I hadn't done that. I wish I would have actually stuck to previous lenders that I worked with in the past, but I'll be honest, I got greedy. I was trying to find the best terms, right? And even if my old lender offered me like 6.7% interest rate, I tried getting like 6.5 somewhere else or 6.4 somewhere else. Not a good move, but regardless of what bank you're working with, these are list of things that you're going to have to provide. So, on one hand, you have to provide all the financials and information on the building. So, all the stuff we talked about, like the T-12, the rent roll, and in some cases, your Schedule E or Form 8825. Now, the Schedule E or Form 8825 for those guys that don't know is the official IRS tax document that outlines the income and the expenses for that property, for that asset, right? So, in some cases, banks want to see that because like you, they want to verify the income and the expenses. Because if there's one business that the banks are always in, it's in the business of managing risk. Now, on top of that, they're going to ask for tax returns for all partners including you and even sometimes your investor for the last two to three years. And last but not least, they are going to ask you for what's called a PFS, and that's a personal financial statement. And that pretty much is outlining your liquidity, all the investment assets that you have, everything from even cash value life insurance to how much you have in 401k, how much you have in the stock market, to what you have in your savings and your checking. Now, before you go out and start googling templates and start filling one out, mind you, a lot of these banks have their own version of a personal financial statement that they want you to fill out. In fact, I've probably filled out in the past, I don't know, six or seven different financial statements uh just because the banks wanted me to fill out their version, and they were more comfortable with what they had. So, keep in mind. Now, on their end, they're going to do what's called an appraisal and an inspection. So, they're going to send an inspector out there to make sure, obviously, that there's nothing crazy going on, or they at least account for it, and they're going to, obviously, send one out to do an appraisal. Now, two things when it comes to understanding these things is, number one, keep in mind that you as the buyer are most likely going to have to pay for these things, or it's going to come out of your closing statement when you close on the actual asset, meaning the seller's going to technically pay for it, right? But what I didn't account for very early on in my career is, number one, how expensive these appraisals can be. Because on a building like a 20, 30, or 40-unit building, these appraisals can easily get up to 7, 10, 15, sometimes even 20, 25 thousand dollars.

[00:16:45]So, again, a lot of these little things like inspections, appraisals, fees, they can sneak up on you. So, it's not often times enough for you to just raise the money for the down payment, you have to raise money for a lot of these other things as well, right? Now, speaking of which, one thing that I'm really, really glad that I did in the past is I put a contingency in all my purchase contracts that if the appraisal comes back and it's actually lower than the purchase price, the purchase price actually automatically sets and resets to the appraised value. So, that way I'm protecting myself and my partners from starting day one being underwater on this asset cuz obviously we don't want that. Now, what they're most likely going to send you as a result of all this is what's called a term sheet. So, this is pretty much them outlining, "Hey, here's the interest rate. Here's all the terms of the loan that we're going to give you." And in most cases, especially on a 24-unit building or a commercial loan, the expected timeline is usually between 30 to 60 days depending on how fast the bank is able to process stuff. But even just the appraisal and the inspection period in general, it's usually going to take about 2 to 3 weeks. So, just make sure that you account for that. Now, this is where we go to the mistakes. These are the lessons that I made that unfortunately it caused this process to be upwards to 9 months. Now, mind you, this was actually the longest time it ever took for me to close on a piece of real estate. It takes me about 2 to 3 months from everything from due diligence to underwriting to financing, right? Like we usually nail it down cuz we're pretty good at what we do, but this one it took 9 months and here's why. Now, without saying the name of this bank, right?

[00:18:26]Uh there was initially one bank that we worked with. And when I was on the phone with this particular individual that worked for this bank, the question that I asked is, "Hey, is this a recourse loan or a non-recourse loan?" Now, the reason why I asked that question is because number one, the guy who actually invested into this building is a good friend of mine was actually investing out of his SDIRA, which is a self-directed independent retirement account. And per IRS guidelines, an SDIRA is actually not allowed to invest in a recourse loan. Now, for those of you guys that don't know the difference between a non-recourse and recourse, it's just a fancy way of saying, "Hey, if you default on the loan, we can either go after you or not go after you in order for you to make up the difference that we need to cover the loan. So, if somebody defaults, typically what the bank will do is they'll foreclose on the building, they'll sell the building on their own, and then hopefully the proceeds from that sale will cover the remaining balance on the mortgage. If not, and it's in a recourse loan situation, they have the ability to go after you.

[00:19:32]Obviously, in a non-recourse scenario, that doesn't matter, right? They can't really do that. So, when I asked the question, "Hey, is this a recourse or non-recourse loan?" I was asking not only for my LP, but obviously I wanted to know for myself what the level of risk was going to be for all the partners. Well, long story short, in that initial phone call, this woman told me that this was a non-recourse loan.

[00:19:55]Awesome.

[00:19:57]Funny enough, the day before closing, she calls me, and now, mind you, this is like 45 days later. This is like almost 2 months later after I had asked this initial question, and that was actually the reason why I chose this bank to work with, cuz they had great terms, they had a really strong local presence, and they were non-recourse compared to the 17 other options that I had that were recourse. So, the day before closing, she calls me, and she now tells me that we can't close because they didn't know that it was a recourse loan. Which to me is, how do you not know that? That is literally the basic part of your job.

[00:20:36]And to me, it was very funny, and I made assumptions that it was a non-recourse loan, because not only was I told that it was a non-recourse loan, but their compliance department at their bank worked with the self-directed IRA custodian and my investor to ensure that all the paperwork was set, everything was right. So, they didn't even know the So, they didn't even know the basic laws of their own industry and their own job.

[00:21:03]Now, as much as I I point the finger, I should have most likely double if not triple checked considering that 17, 18 other banks were doing recourse loan and funny enough I was told that these guys were not. So, lesson number one is double verify what they actually tell you, especially when you're in the process of vetting the right people to work with and especially after you give them all the information and they have you send you the term sheet, get it in writing and making sure and make sure that it's enforceable on paper to make sure that the level of risk is the level of risk that you understand going into it. Now, this brings us to lesson number two.

[00:21:41]Because obviously after that, we had to scramble and find a new bank. Lesson number two is make sure there's enough margin because more often times than not there's always more than one curveball to get thrown your way.

[00:21:54]Lesson number two is that I got involved now with a new bank. In fact, the broker that I was working with introduced me not only to the first bank but also introduced me to the second individual which they were a big bank out of this particular state. They had a local presence only. They were not national by any means. They weren't even regional.

[00:22:12]They were just this state-specific. And the broker that I was working with, who is a great guy, right? Like he was probably the only guy that I actually enjoyed working with. Everybody that he recommended not so much, right? But I got introduced to this new guy who was going to help us out and he quoted me these specific terms, right? He quoted me, "Hey, we'll give you 20%. We'll give you, you know, 200 basis points above the 5-year Treasury rate, which is very fair, right? And we'll do 25-year amortization."

[00:22:43]The longer the process went on and obviously we they kind of had us over a barrel, right? Cuz at this point we had to actually sign three different amendments to extend closing again and again and again cuz we had to continue finding banks that actually would do what they say they were going to do.

[00:22:58]And obviously it was incredibly frustrating, right? Well, this second bank wasn't that much of a better experience because what ended up happening actually is a week before we were supposed to close, they demanded double what our down payment was cuz our down payment was 20% and what they ended up doing is literally a week before we were supposed to close knowing that we couldn't go to any other bank, they asked for 40% down in order for us to even close. And when I asked the reason why, like why are you guys doing this? Like this makes zero sense, they pretty much gave reasons that I could very easily debunk and made absolute zero sense to me whatsoever and they just said, "Hey, pretty much it is what it is." And moral of the story is always account for margin because you never know. Like that's why if I have a student or client or somebody reaches out to me and says, "Hey, like if everything goes right, I can do X% cash on cash return." I always say, "Hey, let's try to negotiate a little bit more margin cuz I guarantee you something's going to happen where those returns are actually going to go below what your required return is for this asset."

[00:24:06]And so, as frustrating as this process was, we put up the extra 20% and so with 40% down, our annual debt service ended up being $68,841.12, our monthly payment being $5,736.76.

[00:24:23]So, if we're looking at the entirety of the numbers in terms of how much we're actually making cuz it's still a very good deal, we just have to obviously wait longer in order for us to be able to say that. So, the cash flow for this deal is the NOI $119,694.15 minus the debt service of $68,841.12, which if you're following along with the math, it results in a cash flow annually of $50,853.03.

[00:24:51]So again, not too bad, but chances are there's a lot of long-term strategies that we're going to implement to obviously make numbers much more better for not only us, but obviously more so the investor as well. So, I would say overall, it was still a solid deal, right? Obviously, we're making money.

[00:25:08]We're cash flowing over 50 grand a year, and the returns are going to be that much better over the long haul. And not only that, but we also currently have a strategy to raise rents by $150 per unit. So, if you look at it over the long haul, which I always do, it's still a phenomenal deal, but obviously there's a lot of twists and turns that unfortunately I had to navigate through.

[00:25:27]But, hopefully you guys can learn from my mistakes. Now, that being said, if you want to learn how to do deals like this, whether it's acquiring a 15-unit apartment building or a 150-unit building, and you want to learn how to cash flow 5, 10, 15,000 dollars a month through real estate, well, it just so happens my brother and I are actually hosting an event on September 17th through 20th in Naperville, Illinois.

[00:25:48]And we're going to go over And we're going to go over everything on how to find great deals, but also how to finance them, analyze them, you name it, right? Everything that you need to do to pretty much be able to do deals like this. And not only that, but we'll show you how to do all of that in a fraction of the time using different AI tools that I myself have been experimenting with. Now, we also have a tax expert coming in as a speaker along with my mentor Joe Brandon, who's actually the CEO that scaled Topgolf, that will be sharing as well. And of course, we're also going to have my very good friend Mr. Dan Frio from The Rate Update YouTube channel to talk about financing your deals as well. So, for those of you guys that really want to take advantage of this opportunity, I really hope to be able to hang out with you guys. The link to get more info and register for this event is going to be in the description below. So, check it out, guys. I really hope to see you there, but outside of that, thank you for watching. Don't forget to like and subscribe to our YouTube channel, and I'll see you guys in the next one.