Apartment building buyers make this kind of investment for one reason: they want to earn money and pay themselves eventually. If you plan to do the same and are looking into buying apartments to meet your financial goals, this article talks about three ways to pay yourself back after purchasing an apartment building.
If you are the only one doing all the work and you found a deal that raised the value of your purchase, you deserve to get paid a reasonable amount. Here are the three best times you can repay yourself for all your hard work:
1. Upon the Closing of Your Deal
If you already have the money with you and your deal allows for it, you can already pay yourself upon the purchase of the building. Think of it as your reward for putting the deal together by yourself. If a real estate broker can get paid 3% to 6% of the total value you receive, do not hesitate to reward yourself with the same value.
As long as the amount would be reasonable for you and your investors, and you could still give them their desired return, now is the best time to pay yourself. If the deal does not allow that amount yet, hold the self-payment or look for a better deal.
2. While Paying for the Building
There is also an option to pay yourself while you are still paying for the building, and it could be achieved through two methods:
- Via Asset Management Fee: Through this method, you pay yourself a small percentage (usually around 1% to 2%) of the assets you manage each year. Calculate the 2% of the total equity you raised for that year, then divide the amount into 12 months. This number would be your monthly payment. The payment method can continue as long as you own the building.
- Via Cash Flow Distribution: In this method, you assume that 20% of the total equity of the property is yours while 80% is for your investors. Therefore, you can divide any amount you have by the said ratio and pay yourself the proper amount.
3. When You Sell the Building
You can also wait until you have fully maximized the building’s potential and you are now ready to sell it. The final amount largely depends on the rate you are entitled to the building.
Assuming that you own 20% of the building, that means that you should receive 20% of the net proceeds from the sale (after deducting the closing costs and your broker’s sales commissions). The rest of the amount from the net proceeds from the sale would go to your investors.
Since you also managed the building, you can pay yourself a capital transaction fee. It is similar to the concept of the asset management fee mentioned above, wherein you pay yourself 1% to 2% of the amount you received after closing. It could serve as your reward for doing an excellent job in successfully selling the apartment.
Conclusion
The amount you pay yourself would depend on what the partnership entails. Transparency is also an important factor in this whole relationship. Keep in mind that you have investors who partnered with you to make this possible, and they need to be informed about how much you are paying yourself and how much they should be getting. Choose a method that works best for all parties involved.
When the time comes that you are ready to sell your apartment complex building, you can tap us, and we will give you an offer within two days. Buying Apartment Buildings will help you find a direct buyer and transact with them without paying commissions. Let us take out the stress of asset management with you. Contact us to know more about our service!