A Transparent Case Study of my Indy Apartment Building

by The Darwinian Doctor

In this post, I give you a case study of one of my apartment buildings in Indianapolis as we review the 2023 financial performance. I’ll review the annual cash flow as well as the total financial impact of ownership.


As a blogger and investor who prides himself on transparency, I’ve shared the full spectrum of my reality here on the Darwinian Doctor.  While this doesn’t always paint me in the best light, I think it’s incredibly important.  No one wants to read just the success stories.  

Since I started blogging in my second year as an attending urologic surgeon, there have been some notable financial triumphs, like my first real estate purchase and my first net worth report.  These have been balanced out by some dubious decisions, like buying a Tesla and spending over $400,000 a year living in Los Angeles.  But I’m just keeping it real.  

Speaking of real estate, the same holds true:  for every awesome real estate investment story, I have another story about a water leak or a permit suspension to balance it all out.  I’d argue that this paints a much more accurate perception of being an investor, whether in real estate or elsewhere.

Read more: Rental houses vs. stocks: a 25 year portfolio projection

Cereus Real Estate

This approach is all the more relevant in 2024.  Because as you may have read, Jordan Frey and I have started a real estate investment company called Cereus Real Estate.  The focus of Cereus will be to pool the capital of physicians and other professionals to purchase large multifamily assets like apartment buildings.  

Since we’ll be investing in apartment buildings, I figured I should delve into the financial performance of some of my own apartment buildings.

I’ve actually written before about why I like apartment buildings (especially in a recession).  To summarize my findings, apartment buildings offer the following benefits:

  1. Apartment buildings are recession resilient
  2. The value of apartment buildings is formulaic
  3. They offer economy of scale
  4. Apartment buildings are expensive, so everyone can “get a piece”

But I also own apartment buildings of my own, and to support the apartment building hypothesis, I’d like to offer up one of them as a case study.  

The Fountain Square 7 unit

The 7 unit

This is a property that I’ve owned for a few years.  It’s a 7 unit building, though I think it’s likely that it was at one point a duplex or a quad that was chopped up into 7 discrete units.  Some of the units are slightly odd in terms of their configuration, with smaller than expected bedrooms or missing windows.  But overall, it’s a charming building on the edge of one of the hippest, up and coming areas in Indianapolis called Fountain Square.  

I purchased it in mid 2021 for $510,000 and then put about $120,000 into renovating the units as they turned over in between tenants.  All together, this is how much cash I’ve put into the property:

  • Downpayment:  $127,000
  • Closing Costs:  $6837
  • Renovation Costs:  $120,000
  • Total cash input:  $253,837

We finally finished renovating all the units in early 2023, so this is the closest year we’ve had to a finished product available for rent.  After all expenses, this apartment building brought in a profit of $16,103 in 2023.  This equates to a cash on cash of 6.3%, which is not a bad return for a less than complete year of rental.    

However, as some of my readers know, this doesn’t even come close to the true financial benefit of owning this apartment building.  

The 5 ways rental real estate makes you money

Some of my savvy readers will know that there are actually at least 5 ways that real estate makes you money:

  1. Rental cash flow
  2. Tax benefits
  3. Appreciation
  4. Principal paydown
  5. Inflation hedge

We’ve already talked about the cash flow, which was about $16,000.  Due to depreciation, this income will be tax free, making it the equivalent of about $24,615 of pre-tax income at a 35% tax rate.  

Let’s go through the rest of these items to see what the full financial benefit of this ownership was for 2023.  

Read more: The 5 ways rental real estate makes you money

Tax Benefits

I wasn’t a real estate professional when I bought this property in 2021.  I was still working full time as a urologic surgeon in Southern California.  But as of 2023, I am a real estate professional, since I spent the majority of the year working on real estate and met the other requirements by the IRS.  

Kim Lochridge is very tall

So after consulting with my gal Kim Lochridge at Engineered Tax Services (affiliate link), we decided to go ahead and do a cost segregation on the property.  This will allow us to perform accelerated depreciation on the property.  After filing a form to “bring forward” the paper losses into 2023, we expect to yield approximately $145,000 of depreciation, 80% of which can be accelerated into our taxes.  

After applying our usual 35% tax rate, this should yield about $40,600 off our 2023 taxes.  

Note:  this is an estimated benefit.  I won’t know the true impact until I get back my final cost segregation report, which is still pending.  I expect that the actual benefit might be better, since I think the original analysis over-estimated the value of the land.  

If this part was confusing, try reading this post:  How a Cost Segregation with Engineered Tax Services got me a $105k Tax Refund


One of the reasons I like apartment buildings is that their valuation is formulaic.  You take the net operating income for the property and divide it by the prevailing cap rate for the area.  

Apartment building value = NOI / Cap Rate

Since we improved the property with nice renovations (at the cost of $120,000), we have been able to increase the income for the property as well.  We had a NOI of $48,509 for this building in 2023.  Assuming a conservative 6.5% cap rate for this area, this means that we increased the value of this apartment building by about $236,300. 

  • Prior value:  $510,000
  • Renovation cost:  $120,000
  • New value:  $746,292
  • Financial benefit:  $116,292

This method of increasing a property’s value is called “forced appreciation.”  Admittedly, it’s sort of a phantom benefit, since it’s not money in anyone’s pocket until the building is sold.  Nonetheless, it reflects a real increase in my net worth.  

Principal Paydown

This is another benefit of owning real estate.  There’s a whole lending industry dedicated to servicing the real estate industry.  This allows you to use leverage to buy real estate.  I’ve written before how I think that principal paydown is actually a method of “stealth wealth.”  It silently increases your net worth every year, just by paying down your mortgage every month.  

Read more: The Stealth Wealth Strategy of Principal Paydown

When it comes to this apartment building, I have it on a fixed monthly payment at a 5.5% interest rate and a 20 year amortization period.  

After 1 year of mortgage payments, I paid down the principal I owe to the bank by $11,243.  While again, this isn’t money in my pocket, this is a real increase in net worth since it’s less money that I owe to the bank.  

Inflation hedge

Finally, owning rental real estate is a hedge against inflation.  It’s a type of asset that can increase in value as our economy experiences inflation.  This is because rent is generally indexed to inflation.  Thus, if rent rises to provide increased profit (after expenses), the value of the building should increase as well.  

The actual value of this in 2023 is hard to compute, since in general, apartment building valuations suffered this past year due to the interest rate campaign by the Federal Reserve. I expect this effect to lessen as rates slowly fall in 2024.

The bottom line

When you consider the five ways that rental real estate creates value, this building provided an estimated financial benefit of about $192,750 in 2023.  Not bad!


To summarize, my 7 unit apartment building in Indianapolis created about $16,000 of cash flow in 2023.  But the full financial benefit of the building to me in 2023 is closer to $192,750 (or more) after considering all factors.  This is the power of owning real estate.  

To add one important caveat to this punchline, I’d say this:  turning around this building was by no means easy.  It took two and a half years of effort, analysis, and project management to get here.  There were countless hurdles, including a hoarder, pest infestation, and some non-paying tenants.  But that’s real estate!  

I’d be careful of investors that just show their wins.  No investment or deal worth its salt will be without challenges.  The important thing is knowing how to navigate the challenges in an intelligent and ethical manner to yield a positive outcome.

– The Darwinian Doctor

Experience the financial benefits of real estate without dealing with the headache!

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Wealthy Doc
Wealthy Doc
5 months ago

Congrats on the property and on REP status!
Thanks for sharing the details!
Fountain Square is a good part of Indy for rentals too.

NJ Momah
NJ Momah
5 months ago

Thanks for your candor.
46203 is a great area for real estate investment.
Congratulations of achieving real estate professional status!

5 months ago

I love how honest you are. You tell the good and the bad. It’s exactly what we need to hear as readers. Congratulations on all your success in 2023.

5 months ago

Thanks for the transparency! How did you find this property from out of state, and how are you actually managing the property from out of state?

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