Financial freedom. Generational wealth. Leaving the rat race. Taking control.
These are all sayings you frequently hear when it comes to real estate investing. If you are like me and more analytical in nature, you nod your head quickly and say “Sure, sure, show me the numbers”.
Today we look at a hypothetical investment over a 15-year period to show the competitive return profile of a representative multifamily real estate investment. Annual returns and cash yields displayed are approximate industry averages and used for demonstration purposes.
A typical real estate syndication will require a minimum investment of $50,000 – 100,000. For purposes of the exercise we have assumed a $75,000 initial investment. Cash on cash (CoC) is 8% and the assumed sales price yields a 10% return in addition to the annual cash.
In year one, you the investor make a $75,000 capital contribution in exchange for a share of the property. $6,000 is returned to you at 8% CoC (either on a quarterly or annual basis). Over the next four years the GPs work with a property management group to implement the business plan and optimize NOI. In year 5 an email arrives….”Great news! A buyer has made a strong offer for the property and we can sell at a nice profit thanks to the execution of our plan.” You receive a wire for $126,788 and have cumulatively now received $150,788. Subtracting your initial investment, we see that you doubled your capital and made $75,788 on the deal.
Now perhaps you celebrate with your fellow LPs and GPs, take your spouse to a nice dinner, maybe even fly to the Caribbean for a quick trip (please send recommendations this way). But by now you are an astute investor, aware of the power of real estate, and decide to roll the investment into a second property. Another 5 years go by and now we have $300,000.
Again, you could pocket this money, put it in savings, bet it all on $GME, but instead we decide to use the power of real estate to lever our returns.
$609,509, all from an initial investment of $75,000. If you were 35 years old, you now have leveraged an initial investment into over half a million dollars by the age of 50.
Imagine if you did not just invest in one of these but could find the power to invest every couple years, or even every year. This is financial freedom, this is generational wealth, and in our opinion there is no better way to put money to work.
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