Fifty thousand dollars is a LOT of money for most of us. Nevermind fifty thousand dollars per year. I get it, but hear me out. Once you see the potential results, I strongly believe you’ll be more willing to put in the effort required to get there.
I’ve seen regular people with regular salaries (even teachers!) do this and change their life trajectories forever. So, as with most things in life, it’s about resourcefulness, not so much the resources. You can do anything you put your mind to, and seeing the progression of investing in syndications year after year might help you put your mind to it.
Here’s what could happen when you invest $50,000 a year into real estate syndications:
While the first year may not be life-changing, it’s definitely an accomplishment to invest your first $50,000. It’s also pretty cool to pick out that first property. Let’s pretend you select a 350-unit value-add multi-family unit in Dallas, Texas.
Soon afterward, you begin to receive $1,250 every three months in distribution checks, which is about 10%, pretty common in our standard deals.
A nice, modest start at this point.
In the early spring, you receive your first Schedule K-1, which is the tax document that shows your income and losses from your first investment. We’ll call that Dallas apartment complex from year 1 property A.
Through the magic of our tax system, accelerated depreciation, and cost segregation, your K-1 form for property A shows hefty paper losses, even though you enjoyed around $400/month average since the distributions started. Those paper losses allow you to offset both your investment income and some of your regular income as well!
This same year you invest another $50,000 into syndication B, which bumps your cash flow from real estate syndication investments to $2,500/quarter ($1,250 from each property, A and B). Now we’re talking!
This year, in the early spring, you receive two K-1 tax forms. This marks a turning point in your finances because from here forward, you’ll begin to look forward to tax season!
Soon you invest another $50K into your third deal, real estate syndication deal C. Afterward you begin to receive 3 distribution checks each quarter, totaling about $3,750. You’ve boosted your yearly income at this point by $15,000 annually. Not too shabby!
Partially through the year, Real Estate Syndication A sends word that renovations are complete on the property, and the sponsors are seeking to sell the asset early. Because this property is in a hot submarket in a growing metro area, the listing gets a lot of attention and is soon purchased by another syndication group.
Your original $50,000 investment from Real Estate Syndication A, plus an additional $25,000 in profits from the sale is received. Cha-ching!
You play it smart and invest all your returns from Real Estate Syndication A ($75,000), plus the $50,000 you’ve saved in year 4, into Real Estate Syndication D.
You now have a total of $225,000 invested, across three syndications, each with a preferred return of 8% and an average annual cash flow of 10%. This should yield about $22,500 annually in cash flow distributions (~$5,600 per quarter). Now things are really getting interesting!
By this time, Real Estate Syndication B (your investment from year 2) has completed its renovations and is also sold. You receive your original $50,000, plus an additional $25,000 in profits.
Last year’s deals worked out great and you love the way the general partnership team has been working, so you decide again to roll that $75,000 from investment B along with this year’s $50,000 all into Real Estate Syndication E, bringing your total invested capital to $300,000.
Now your cash flow checks start really looking good, totaling about $7,500! At about $2,500/mo it’s better than some people’s net monthly salary.
Now that you’re getting the hang of it, let’s start moving a little more quickly.
In years 6 and 7, Real Estate Syndications C and D are sold, respectively. Each year, you invest additional capital of $50,000 to the returns you receive from those exited deals. In each year 6 & 7, you invest $125,000 into Real Estate Syndication F & G, respectively.
Now, you have a total of $487,500 invested. Every quarter, you’re getting multiple cash flow distribution checks totaling around $12,000, or about $48,000 per year.
You’re now nearing a decent career path’s GROSS salary value. It’s like you’ve got an invisible earner in your home generating income but not adding to any of your expenses. And because of all the depreciation benefits, you’re continuing to show paper losses (remember your favorite K-1 forms), so all this cash flow isn’t being taxed!
Another three years pass. The kids grow, you’ve checked a few life experience must-haves off the list, and you’re maturing into the life of a savvy real estate investor.
You’ve now been investing $50,000 every year for 10 years. The first six deals have exited, each time leaving you with a healthy return to reinvest.
Over these 10 years, you’ve saved up $500,000 in cash, which is no small feat. You’re smart and money-savvy, which is why you put that into syndications instead of McMansions and Ferraris. So let’s do the final round of math, shall we?
In each of years 8, 9, and 10, syndication deals sold and left you with healthy returns to roll into the next investment. By the end of year 10, you have over $880,000 invested in multiple real estate syndications across multiple markets and asset classes, producing almost $90,000 in diversified passive income per year. That’s more than the median household income in the US!
So, if you were to invest $50,000 a year into real estate syndications, THAT’s what happens.
At this point, you earn passive income of over $90K per year, and that figure grows every year. You love your chosen career, so rather than quitting, you opt for a freelance lifestyle, giving you more flexibility to take longer trips with your family.
You enjoy fun once-in-a-lifetime experiences, travel, hike the Inca Trail to Machu Picchu, enjoy yoga retreats, and stay in a glass igloo so you can dream beneath the Northern Lights. Good thing for those regular distribution checks!
You have the ability to donate often to charities and non-profit organizations that you love and be an active volunteer at your kids’ school and in your community.
Perhaps the passive income enables a great education for the kids, or a personal chef, or helps fund an early retirement for your parents.
Most of all, you rest easy with the confidence that you’ve created a lasting legacy for your family. Someday, they’ll continue to invest and build their own passive income. You won’t have to worry about being a burden on them in your old age.
You probably already know most of what I’m going to say here, but it’s important to reiterate.
Real-life investing is not clean and easy like it seems from this post. You can’t predict exactly when a deal is going to exit, cash flow returns might not be exactly 10%, and you may not be able to find a great deal to invest in right when you’re ready. Life is complicated.
The scenario we walked through together in this post is based on an average hold time of 3 years before the deal exits. While most of our syndications project a 5-year hold, most of them exit quite a bit sooner than that, often soon after the renovations are complete and the property is stabilized.
You should also notice that the example didn’t include reinvesting the cash flow, an option that would further accelerate the growth. But life’s meant to be enjoyed too, right? Rough calculations for capital gains taxes and depreciation recapture at the sale of each property have been incorporated, though the operative word here is “rough.”
In the end, it’s very unlikely that you would see these exact numbers. It’s possible that the numbers could be slower to grow, but it’s also possible that you’ll see much faster growth. This post is not meant to be a prescription. Rather, to demonstrate to an order of magnitude how diligence and patience, together with compounding returns, can dramatically change the course of your financial future – and that of your family.
Investing passively in real estate syndications is NOT a get-rich-quick scheme (usually!). Quite the opposite, in fact. Investing in real estate syndications is a long-term strategy that should result in building wealth slowly but steadily over time.
It’s almost like farming. You have to plant the seeds, then wait a season or more before the harvest.
Dabbling in house hacking, private lending, and out of state rentals might be your entry point. And if so, that’s great because you’re on to something. Hopefully, this 10-year plan opens your eyes to something bigger and better.
There’s rarely a well-trodden path, and it’s even less often laid out this clearly. Real Estate is worthwhile, but some investments are wins and others aren’t. This method of $50,000 at a time is a predictable, operable, seemingly magical process anyone can implement to begin their syndication journey.
And that’s why we’re investing in these syndications right alongside you, one $50K investment (or more) at a time. And, like you, we look forward to the next ten years using this stable, intentional, and low-hassle path toward growing our passive income and wealth.