Behind-the-Scenes: A Look at the Returns on 3 Multifamily Deals

Behind the Scenes

An Insider’s Look at the Returns on 3 Multifamily Deals

When it comes to investing, as with many of life’s major paths, it’s easy to look back and see the best choices, what should have been done, and what would have been a smart decision. Harnessing the ability to thoroughly understand your financial situation, identify actual financial goals, and commit to a plan of action are all easier said than done.

By looking at the past performance of three multifamily real estate investment projects, how much they returned to investors, and the impact they’ve had in their respective communities, it might help you understand what real estate syndications could add to your portfolio.

Keep in mind that, although these are based on actual projects and data, some identifying information has been adjusted to protect the privacy of the deals, partners, and investors.

Ready to dive in? Let’s go…!

looking at the past performance of three multifamily real estate investment projects…it might help you understand what real estate syndications could add to your portfolio

Case Study #1:

320-Unit Apartment Community

In May of 2016, a 320-unit apartment was acquired for $26.6 million. The class B apartment community was built in ‘83 and in a rapidly growing submarket of DFW (in Texas).

The business plan included on-site operations improvement and renovations for each unit for a full value-add deal. Upon acquisition, a professional property management team was placed. They maximized operational efficiencies and executed each phase of the business plan beautifully.

Within 18 months, the renovations were completed, and, since the market was favorable, the team sold the property for $35.2 million. This means by the time the property sold and everything was finalized, which actually took 22 months total, they’d exited the value-add real estate syndication with a profit of $8.6 million dollars.

What does this mean for investors?

Let’s pretend you’d invested $100,000 into this particular deal as a passive partner. You would have wound up with $170,000 in less than two years from your initial investment date. 70K profit in 22 months with zero work? Yes, please!

Case Study #2:

216-Unit Apartment Community

Our next example is also in DFW but only had 216 units and was built in ‘81. Although dated, it was a nice class B asset in a growing submarket of the metroplex.

One key difference between this example and the last one is that this apartment complex hadn’t been publicly listed. It was acquired off-market because of a partner/broker relationship established prior. They had a great track record and were able to make a quick, favorable deal without the challenge of competing against other potential buyers.

For $12.2 million the deal was done. The team rebranded and repositioned the property and invested several thousand per unit for renovations.

In just 18 months, the property sold for $18.25 million. They exited this particular real estate syndication deal with an over $6 million dollar profit.

If you were an investor in this deal with a $100,000 buy-in, you would have exited the deal with $200,000 just a year and a half later. I don’t know many places you can double your money that quickly.

Case Study #3:

200-Unit Apartment Community

Our third example is a more current project that was acquired off-market in December of 2017 for $16million. This 200-unit apartment community, also a class B asset, is in the DFW area like the others examined in this article.

Since it’s an ongoing deal, let’s dive a little deeper and study the progress.

May 2018 (6 months after purchase)

By then 38 units had been remodeled and new rental rates were $20 more than original projections. So, basically, the project was ahead of schedule – both renovations-wise and rental rate-wise, which is what you want to hear!

And $20 per unit might not sound like much, but when you talk about raising the rent per unit not only to a projected value, but $20 more than that??!! Well, it really adds up!

38 renovated units x $20 = $760 per month and $9,120 per year. At a conservative cap rate of 10%, this added $91,200 of unexpected, positive equity to the property.

Cha-ching!

Other projects completed within the first 6 months included an outdoor kitchen, a new dog park, rebranding with new signage, and construction of over 40 carports. That’s some serious progress!

December 2018

Renovations continued to run smoothly and new units were achieving rental premiums beyond projections. In fact, as a result of the increased rental rates, investors received an additional 2% in returns this month.

That means investors who put $100,000 in are receiving an extra $2,000 above and beyond the standard returns which have been about 0.67% or $667/month. Nice holiday bonus, right?

February 2019

This property and the team continued to outperform projections. In fact, within the first year, we experienced a 26.4% surplus which will allowed a refinance deal to go through at the end of the month.

That’s exciting news because, with these kinds of numbers, investors received 40% of their capital back while still maintaining the same cash-on-cash returns based on the original value invested.

What that means is the property is performing so well that the team is okay pulling some of the originally invested capital out of the project.

If you’d originally invested $100,000, not only would you have been receiving your $667 each month, plus the $2,000 bonus back in December, but now you’d have received a check for $40,000 of your original investment back with no change to your monthly returns.

Life. Changing.

August 2019

Renovations including eco-friendly toilets and showerheads were completed on 135 out of 200 units. Not only did the renovated units rent for an astounding $80 over projections, but we saved lots of cash on the overall utility costs for the property.

Future Outlook

All renovations necessary to complete the value-add process were scheduled for completions in just a few months. At that point, the team will either choose to sell or hold the asset until market conditions are most favorable.

Either way, this real estate syndication deal has been a huge success already, and residents and investors alike are both very happy.

Conclusion

The number one thing holding back potential investors is syndication education. These real estate syndications sound great and you see peers making great returns, but it can be super scary to invest your own $50,000 or $100,000.

Self-education toward understanding real estate syndications can be time-consuming and require a lot of energy upfront before you feel comfortable. The case studies here are all real projects that we and our partners have been a part of. None of the returns or the performance of the projects have been fabricated.

What can you do today, that your future self will thank you for? Investing in your financial education is one of the best ways to jump-start the progress toward your success two, five, or ten years from now. Look back at the deals mentioned here. Within 2-3 years the amount of income these investments have generated is absolutely impactful, to anyone’s life.

It’s why we absolutely love helping people generate Passive Income…for life!

In addition to the ideas just presented, you can amplify your journey with the following resources:

EXPLORE more about the power of passive real estate investments in our section of other blogs and videos.
SIGN UP for our newsletter for passive income-related content delivered right to your inbox
JOIN our Passive Income Investors Group to gain access to multifamily investment opportunities and more behind the scenes content

Which Investor Type Are You

The Beginner’s Guide to Investing In Real Estate Part 2

Which Types Are Best for You?

There are TONS of ways in which to get started investing in real estate. Everything from crowdfunding sites to residential real estate fix and flips to commercial storage units and office buildings are at your fingertips if you know where to look.

This is also why, as a beginner in the whole wide world of real estate investing, you might feel overwhelmed. However, with a little guidance, you’ll be able to narrow down which types of investments suit your lifestyle, financial goals, and personality best.

In our last article, The Beginner’s Guide to Investing in Real Estate: How to Get Started, we walked through gaining a macro-view of your current life situation, determining your why, deciding how hands-on you desire to be, assessing your risk tolerance, and even learning how much money you’re ready to invest.

Ultimately, it’s likely that, after slogging through those six soul-searching steps, you fall into one of the groups below.

You Likely Fall Into 1

of These Categories

The Lots of Money / Little Time / Hands-off Investor
The Little Money / Little Time / Hands-off Investor
The Little Money / Plenty of Time / Hands-on Investor
The Lots of Money / Plenty of Time / Hands-on Investor

Ready to learn which investments fit each type of investor?

Let’s go!

The Lots of Money / Little Time / Hands-off Investor

If you’re someone who fits predominantly into this category, it’s likely you’ve been saving a while or investing in the stock market since the day you received your first paycheck. It’s also possible that the tax breaks, passive income, and potential positive impact your real estate investments can make on a community are attracting your attention.

However, you’re a very busy individual – maybe with a family or in the prime of your career or both! You haven’t got the time to research neighborhoods and markets or tour properties, much less to actively renovate or manage a property.

–> Recommendation: Become a Passive Investor

For investors with the money to invest but not enough time on their hands to manage the property and get the maximum returns, passive real estate investments are the ticket. You can invest passively through turnkey rental properties or commercial real estate syndications.

Turnkey Rental Properties

Turnkey rental properties are smaller scale and as simple as they sound. You purchase a to-be rental property, ready to go, with minimal involvement or work needed. It’s even possible to hire a small scale property manager and you can enjoy some cash flow, albeit usually small, very quickly.

Commercial Real Estate Syndications

Another opportunity lies in group investments where money is pooled together to buy a large piece of commercial real estate property – a.k.a. a syndication.

Syndicators do all heavy lifting from the research and analyzing markets to meeting brokers, hiring contractors, overseeing the business plan, communications and much more. They find commercial real estate properties they think would be an awesome investment and then orchestrate the deal, the renovations, operations of the property, and usually a few years down the road, the sale of the property.

This is where investors like you come in. You rely on the syndicators’ time, expertise, and partnership team. Meanwhile, your money is invested, and every quarter you receive a distribution check – your portion of the returns earned on the asset. Plus, when the property sells after the hold period, you receive a part of the sale’s profits.

Overview of These Types of Real Estate Investments

What you put in
Investment dollars

What you leverage
Other people’s time and expertise

What you get
Ongoing passive income, confidence knowing your money is being put to good use by an experienced team, tremendous tax advantages and an equity stake in real estate.

The Little Money / Little Time / Hands-off Investor

In contrast, if you don’t have a large pool of money or time to spend investing in real estate (yet!), but are attracted to real estate as a way to build such wealth, there are options for you too!

One of the best ways to get started investing in real estate with little capital is using crowdfunding sites. Another clever way is to find some friends or family and pool your money into a larger sum in an LLC created to invest in a property.

–> Recommendation: Invest through a real estate crowdfunding site

Just as Kickstarter funds new products, there are real estate crowdfunding sites where people can pitch in low amounts of capital toward commercial real estate projects. The difference? Crowdfunded commercial real estate pays cash dividends instead of t-shirts and sneak peeks of the product’s prototype.

Real estate crowdfunding sites are open to public use, typically have low initial investment requirements, and are available to both accredited and non-accredited investors.

Overview of These Types of Real Estate Investments

What you put in
Your money (in small amounts)

What you leverage
Crowdfunding platforms, experienced deal sponsors, strength in numbers (i.e., lots of people all putting in small amounts of money)

What you get
A variety of choices on crowdfunding platforms and real estate projects, ability to invest with very little capital, various project types and project lengths to suit your investment goals

The Little Money / Lots of Time / Hands-on Investor

So, you’re interested in real estate, but cash isn’t exactly “flowing” in your life right now. That’s okay, because if you’re willing to roll up your sleeves, there are still ways you can make your first investment in real estate.

You still have something of value to bring to the table – sweat equity. This means you’re willing to spend the time and effort to find properties, devour the paperwork, rehab the property (maybe personally), and make your passion for real estate become create cash.

Your Strengths, Interests, and Goals

If the above describes you, take a moment to identify your strengths and passions. Does the thrill of hunting for deals interest you the most? Is the renovation planning and execution process exciting to you? Maybe you’re a numbers nerd and can’t wait to analyze the trends and markets of each neighborhood?

Additionally, what are you in it for? Long term equity or short-term capital?

Here are some of the most common ways you can invest in real estate with little money and lots of time.

–> Recommended Real Estate Investment Strategies

1) Fix and Flips

This is where you buy a run-down piece of property, fix it up, and then sell it for a profit – just like it sounds! Fix it. Flip it. If you don’t have cash for a down payment, short-term private loans might be an option. You just need a few months to a year or complete the renovations. Then when the property sells, you pay off your loans and pocket the profits.

2) The BRRRR Strategy

I hate to break it to you, but no, BRRRR doesn’t mean it’s cold in here. BRRRR stands for buy, renovate, rent, refinance, and repeat. It’s a lot like the fix and flip strategy except that you hold onto the asset for a longer term.

If you took out a private loan to cover the down payment, you pay off that loan during the refinance step of the process. If done correctly, the value of the property after renovations/repairs will be significantly higher than the purchase price. This abrupt upward appreciation will allow you to do a cash-out refinance and pay off any loans you took to buy the property.

3) Wholesaling

If you’re a good networker and are able to find “off-market” deals, you may be able to get a property under contract at a low price. Then, while under contract and before the purchase is complete, you wholesale it to another buyer at a higher price. The difference between the two purchase prices goes in your pocket.

4) House Hacking

Depending on your local market, you may be able to get your foot in the proverbial real estate door via house hacking. This is where you buy a property with 2-4 units, you live in one of them, and you rent out the other units. The rental income received from other tenants pays your mortgage. Sweet!

5) Real Estate Crowdfunding Sites

Crowdfunding sites are a great place to start learning about real estate syndications without the pressure of running one (yet!). You can learn to find and compare deals, research sponsor teams’ track records, and learn what to expect in a syndication deal as far as communication and returns for investors.

Overview of These Types of Real Estate Investments

What you put in
Your time

What you leverage
Other people’s money

What you get
Firsthand experience, potential for high returns on very little cash investment

The Lots of Money / Lots of Time / Hands-on Investor

Um, can we be best friends?

You’re in a fantastic position to make your money grow exponentially.

–> Recommendation: Lead commercial real estate syndications

If you’d like to be an active investor, leading your own syndications puts you in the driver’s seat. You get to find the deals, assemble the team, raise the capital, and have a say in the day-to-day operations. The choice is yours to go it alone as the syndication lead or to partner with others and create a syndication business.

–> Recommendation: Become a passive investor in commercial real estate syndications

You also have the option to be a passive investor who’s extremely active in finding and vetting deals for real estate syndicators or private equity firms.

Savvy passive investors know the lingo and have some basics down about deal structures and underwriting. Any investment can look great in a fancy marketing packet, but only savvy investors will know the right questions to ask and be able to reveal details about the deal and the team.

Overview of These Types of Real Estate Investments

What you put in
Your money and your time

What you leverage
The power of others’ expertise, time, and money to help you go bigger, faster

What you get
The freedom to carve your own path and maximize how hard your money is working for you

Summary

This article just threw a ton of information at you, and even though it was separated into categories, an overview might do you some good.

Before reading this, we hope you took some time to identify your investing goals, your current life stage, your risk tolerance, and your investing goals, as outlined in The Beginner’s Guide to Investing In Real Estate: How to Get Started.

From there, it’s likely you fell into one of four categories. Within each group, beginner investors have multiple opportunities to get started on their real estate investment journey. Our suggestions for real estate investment opportunities per investor-type are as follows:

The Lots of Money / Little Time / Hands-off Investor

Consider investing passively in commercial real estate syndications

The Little Money / Little Time / Hands-off Investor

Consider investing small amounts through real estate crowdfunding sites

The Little Money / Lots of Time / Hands-on Investor

Lots of options: Fix and flip, BRRRR method, wholesaling, house hacking, crowdfunding, and more

The Lots of money / Lots of time / Hands-on Investor

Active: Consider leading your own commercial real estate syndication

Passive: Invest through real estate crowdfunding sites or directly through syndicators and private equity firms

Conclusion

All in all, there are real estate investment opportunities for every type of investor, at every stage of life, with any range of available capital and time freedom. Once you’re able to identify which investor type you are at this time in your life, you can see the opportunities within that category and how they make sense for you.

One common misconception is that you need a decent amount of capital saved up in order to get started investing in real estate. The options presented above, coupled with The Little Money investor type, debunked that myth!

Now, I encourage you, don’t wait a minute longer. Get started toward becoming a real estate investor by taking action on one of the passive or active investment opportunities described above, according to the category in which you best fit.

We look forward to chatting with you in the near future about our syndication opportunities. It’s a fabulous way to create Passive Income…for life!

In addition to the ideas just presented, you can amplify your journey with the following resources:

EXPLORE more about the power of passive real estate investments in our section of other blogs and videos.
SIGN UP for our newsletter for passive income-related content delivered right to your inbox
JOIN our Passive Income Investors Group to gain access to multifamily investment opportunities and more behind the scenes content

Real Estate Syndication Investing 101

What the #@%& is a Multifamily Syndication?

– And How Does It Work? –

Many real estate investors “get their feet wet” through some form of residential real estate. Whether those initial investments are flips, standard rental homes, or even duplexes, it can be a great way to start and has served many real estate investors very, very well. In the course of our journey, we’ve discovered and absolutely love the power of multifamily syndications. However, whenever we speak to many of our friends, family and colleagues, they may have only vaguely heard of multifamily syndications…or not at all – nothing but blank stares.

Actually, that’s pretty common. Until somewhat recently, SEC (Securities Exchange Commission) regulations did not allow for real estate syndication opportunities to be publicly advertised. This made it so that you had to be part of the “inner circle” (i.e., you had to know someone who was doing a deal) in order to invest in one. The intent of the regulation was, and is, to protect unsuspecting and ill-informed potential investors from getting involved in investments they don’t fully understand.

The SEC now however allows certain opportunities to be shared more broadly, with caveats, which opens the door for more people to learn about and invest in alternative investments, like multifamily syndications, which are actually quite common and well-structured.

But maybe you’re unfamiliar with multifamily syndications too, and are wondering things like:

What exactly is a real estate syndication?
How does a real estate syndication work?
Why would I invest in a syndication deal?
What would an example real estate syndication look like?
What are the risks and benefits?

Well, let’s take a look under the hood…

Multifamily Real Estate Syndications – WTH Are They!

Let’s start with the basics.

A multifamily property is, well…exactly as it sounds – a property that can house multiple families. They are like an apartment, 4-plex, or a grouping of housing units.
And a syndication simply means a group of people (or entities) that pool resources together.

So a multifamily real estate syndication is when a group of people pool their resources (funds, time and expertise) together to invest in a multifamily asset. Instead of buying a bunch of small properties, each individually, the group of people come together and buy a larger asset, and typically share in a larger return while de-risking the overall investment.

Let’s pretend you have $50,000 for investing, beyond other savings and retirement funds. You could invest it in an individual rental property, but that would also require time to find a property, evaluate the cost-benefit analysis, negotiate the contract, do the inspections, get the loan, find the tenants and then manage the property.

But it’s likely you don’t have the time or energy (or desire!) to deal with so many obligations. This is where most people assume real estate investing is too hard and too much work, so they stop there.

Real estate syndications are the alternative that allows you to still put your money into real estate without having to actively do the work of finding or managing the property yourself. Instead, you can invest that $50,000 into a real estate syndication as a passive investor. So you contribute $50,000, maybe a friend has another $50,000 to invest, someone else puts in $100,000, along with others until you’ve raised what’s needed to close on the property.

By pooling resources, the group now has enough to buy not just a single rental property, but something bigger, like an apartment building. And as a passive investor you don’t have to do any of the work managing the property. A lead syndicator or sponsor team does the upfront work and manages the investment (i.e. all the active work) and in return, they get a small share of the profits. Additionally, a professional property management company can be hired to run the day-to-day operations. And you, the passive investor, enjoy putting your money to work to generate nice, stable returns so that you can focus your time and energy on the things you really want to do.

When done right, real estate syndications are a win-win for everyone involved.

So How Does A Syndication Deal Work?

Ok, curiosity piqued, you’re interested in the “behind the scenes” details of a syndication to see how this all really shakes out.

First off, there are two main categories of investors who come together to form a real estate syndication:

the active investor(s), aka the general partners (GP’s), and
the passive investors, or the limited partner (LP’s)

The prior section described a team that would take care of all day-to-day management (so you don’t have to!) in exchange for a small share of the profits. That team is called the general partners (GPs). They are called the ‘active partners’ and do all the legwork of finding and vetting the property; creating the business plan; securing lender financing; putting up initial “at-risk” funds necessary to close; securing other investors for the down payment & equity; and managing the investment after closing and thereafter, until any subsequent sale. Essentially, they do the work that you would be doing as the owner and landlord of a rental property, but on a massive scale.

The limited partners (LPs) are the passive investors (others like you), who invest their money into the deal in exchange for a portion of the cash flow and/or a percentage of the asset. The limited partners have no active responsibilities in managing the asset.

A real estate syndication is designed to work best when general partners and limited partners join together and collaborate in this manner. The general partners find a great deal and put together an efficient team to execute on the intended business plan. And the limited partners invest their personal capital into the deal, which makes it possible to raise the down payment, acquire the property, and fund the renovations.

Together, the general partners and limited partners form an entity (usually an LLC), and that entity holds the underlying asset. This serves to protect the partners and investors from personal liability and formally organize the structure and responsibilities of each of the partners, along with expected compensation. Because the LLC is a pass-through entity, you also get to share in the tax benefits of direct ownership of a real estate asset.

Once the deal closes, the general partners work closely with the property management team to improve the property according to the business plan, with the intent of increasing business revenue and compounding the property’s overall value. During this time, the limited partner investors receive regular communications as to the performance of the investment and ongoing cash flow distribution checks (usually sent out quarterly).

Depending on the business plan and strategy (such as planned renovations, improved operations or simply maintaining smooth operations), there may be refinancing events and/or a planned sale of the property. A refinancing event is similar to a home equity refinancing to leverage increased value and/or better loan terms and generates a return of capital distribution to the investors. And the sale of a property is most often exercised to capitalize on improved property value, which also returns equity to the investors. When these events take place, even larger payouts are distributed among the partners. And in the case of the sale of an asset, the partnership is then dissolved and team members can work to find yet another great deal.

Why Should You Invest In A Syndication?

Okay, now that you understand the basics of how real estate syndications work, let’s talk about what’s in it for you, the passive investor. There are a number of reasons that passive investors decide to invest in real estate syndications.

Here are a few of the top reasons:

You want to invest in real estate but don’t have the time or interest in being a landlord
You want to invest in physical assets (as opposed to paper assets, like stocks), which is a great way to diversify and hedge against inflation
You want to invest in something that’s historically been more stable than the stock market
You want transparency in how your investment dollars are invested and any fees that may be charged
You want the tax benefits that come with investing in real estate
You want to receive regular cash flow
You want to invest with your retirement funds
You want your money to make a difference in local communities

A real estate syndication is a nearly perfect way that a busy professional can invest in large-scale, physical real estate assets, without the commitment of time or excessive mental energy, while also positively impacting the community and earning interest and tax benefits. This opportunity for passive income is sounding better and better!

Let’s Look At An Example Real Estate Syndication:

Okay, so you’re interested, but you’re still like, “Is this real?” Here’s an example of what a real estate syndication deal would look like.

Let’s say that Jane and John are working together to find an apartment community in Dallas, Texas. Jane lives in Dallas, so she works with real estate brokers in the area to find a great property that meets their criteria. After looking at a bunch of properties, they find one, listed at $10 million.

John takes the lead on the underwriting (a fancy term that means analyzing all the variables, costs and benefits to make sure that the deal will be profitable), and they determine that this property has a ton of potential. Greenlight!

Since Jane and John don’t have enough money to purchase the $10-million property themselves (approximately $3-million upfront costs), they decide to put together a real estate syndication to purchase the property. They create the business plan and investment summary for prospective investors and work with a syndication attorney to structure the deal.

Then, they start looking for limited partners (passive investors) who want to invest money into the deal. Each passive investor invests a minimum of $50,000 until they have enough to cover the down payment, closing costs, as well as the cost of any planned renovations and a safety net to support the transition of operations.

Once the deal closes, Jane works closely with the selected property management team to improve the property and get the renovations done on budget and on schedule.

During this time, Jane and John send out monthly updates, as well as quarterly cash flow distribution checks, to their passive investors.

When the renovations are complete, Jane and John determine that it’s a perfect time to sell and the property sells for $15 million after just 3 years. Each passive investor receives their original capital investment PLUS their split of the profits according to the original deal. In this case, a 70/30 split was agreed upon at the creation of the syndication (70% to investors, 30% to the Jane and John).

At this point, each passive investor has received regular cashflow distribution checks during the renovation and hold period, plus their initial capital investment back once the property sold, plus their portion of the profit split after the sale…a pretty sweet deal for little-to-no work!

In Conclusion

Now that you know the ins-and-outs of a real estate syndication, including what it is, how it works, how little effort on your part it requires, and how simple it could be to begin receiving your first passive income check, definitely don’t wait 10 years to make a move.

We always recommend doing your research until you’re comfortable with how investments work in general as well as any specific investment strategies. Now that you’re armed with this knowledge about real estate syndications though, you’re miles ahead of most other investors. Keep at it! Investing in real estate has given us a huge degree of personal and financial freedom in our lives and we hope you find it just as beneficial, if not even more so! As we love to say…passive income. For Life!

And here are a few ways you can continue taking action to take back your time:

EXPLORE more about the power of passive real estate investments in our section of other blogs and videos.
SIGN UP for our newsletter for passive income related content delivered right to your inbox
JOIN our Passive Income Investors Group to gain access to multifamily investment opportunities and more behind the scenes content

Quit! Trading Your Time for Money

Stop Trading Your Time for Money

– And Start Creating Passive Income –

Take a brief moment with me and imagine this…

You wake up on a normal workday morning and, checking your emails as you so often do first thing every morning, you notice an impromptu meeting with the boss has been scheduled for early this morning. After quickly getting ready for your day, you commute to the office (whether you drive in or log on from the home office). Popping into the boss’s meeting room, you notice HR is present. Uh-oh you think, as your stomach flips. That’s not usually a great sign.

Within the first couple of sentences, you hear the words “we have to let you go”. Your blood rushes to your ears and anything said after that is lost. You’ve just been laid off. If you’re lucky, maybe there’s a couple of months of severance pay. Otherwise, that’s the last paycheck for a while.

“But we just upgraded the lease on our cars. What about the kids? Christmas? Health insurance? Ugh. Why haven’t we been saving more. How am I going to break this to my wife?”

This situation plays out all too often.

The rich don’t work for money. They make their money work for them. – Robert Kiyosak

Now let’s imagine an alternative scenario – one in which you’ve been leveraging your money…

Over the last couple of years you’ve regularly put aside some of your paycheck, as well as taking a nice portion of those bonuses that have come in, and invested passively in real estate. Those investments have built up into an envious and steady income stream and you’ve even reinvested most of the returns and a couple of the larger cash distributions from refinancing events into additional real estate deals – compounding your gains.

Ironically enough, of late you’ve actually been considering submitting your notice to the boss in order to spend more time with the family while the kids are still around and to work on that passion project that you’ve been dreaming of for what seems like ages now. This is just the nudge you’ve needed – a relief! And you’ll even come out with some severance to fund the latest real estate deal you’ve been analyzing. This day couldn’t get much better! Time to call the wife and invite her to a celebratory lunch!

The three Types of Income

Active Income: is a wage from your employer and requires your activity in exchange for money. When you stop, the income stops. Time for Money.

Residual Income: means you receive money after the work is done. For example, an author invests time upfront into a book and then receives residual income on the subsequent sales.

Passive Income: is earned with very little effort and continues flowing even when you aren’t working. Real estate investments are one of the most stable and high-returning sources of passive income.

Now remember the job loss scenario? In that scenario where you’ve built passive income on the side, although you lose your active salary, you still have income.

Social norms guide most people into active income jobs where they get stuck trading their time for money. Wealthy people implement a different approach. They don’t trade their time for money. They have learned to make their money work for them!

Financial freedom is achieved when your earned passive income allows you to live without relying on your active income.

INVESTING INSTOCKS VS. REAL ESTATE

Historically, the stock market returns about 8% annually, which means $100,000 would produce roughly $8,000 per year. That’s only $667 per month.

To replace an income of $3,000 per month, you’d need $36,000 per year, which would be 8% of $450,000.

However, with real estate, $100,000 could buy a $400,000 rental home. How? Through leverage.

Leverage means the bank brings $300,000 to the table.

You put in 25%, the bank puts in 75%, and you earn 100% of the profits.

A $400,000 home renting for $3,600 with a mortgage of $2,100 would net you $1,500 per month. Theoretically, 2 investments of this size could replace a $3,000 monthly income.

The total rental income plus $25,000 in additional equity (based on 5% annual appreciation) equals $43,000, or 43% return in just one year.

“BUT I DON’T WANT TO BE A LANDLORD!”

While the numbers for real estate sure look enticing, for many people being a landlord does not. As they say in the rental business – tenants, termites and toilets. No thank you!

This is where, instead, you can join a small team to acquire real estate and leave the property management to the professionals.

When investing $100,000 in real estate syndication, it’s quite common to earn $8,000 per year (8%), similar to the stock market. This 8% comes in the form of cash distributions, also known as ‘cash on cash returns’.

However, the powerful opportunity lies in the sale of the asset. Syndications usually hold property investments for about 5 years. During this time, building improvements are made, which directly drive up the overall value of the asset, and the general market value typically rises.

Upon the sale, it is common that you receive $160,000 (your initial investment of $100,000 plus $60,000 in profit). This, plus the passive income of $8,000 per year (totaling $40,000), equals $200,000, which is a 20% average annual return. Just putting a few of those investments together over time (or upfront) can generate a tremendous passive income cash flow stream.

SO THIS IS WHERE I SUGGEST YOU QUIT!!!

Quit:

Trading your precious time for a paycheck
Working on someone else’s plan
Paying so much in taxes
Missing out on your dreams, time with your family and adventures
Putting off your future!

Take action today and start building up your passive income road to freedom.

EXPLORE more about the power of passive real estate investments in our section of other blogs and videos.
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