Fifty thousand dollars is a LOT of money. Nevermind fifty thousand dollars per year. I get it, but hear me out. Once you see the potential results, I strongly believe you might be more willing to put forth the effort required to get there.
I’ve seen regular people with regular salaries (even teachers!) do this and change their trajectories forever. So, as with most things in life, it’s about resourcefulness, not 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 that exciting, 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 $333 per month in distribution checks, which is about 8%, an average for 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 for property A shows hefty paper losses, even though you enjoyed a nice $300 a month since the deal closed. Those paper losses allow you to offset both your investment income and your regular income as well.
This same year you invest another $50,000 into syndication B, which bumps your monthly cash flow from real estate syndication investments to $666 ($333 from each property, A and B).
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 month, totaling about $1000. You’ve boosted your yearly income at this point by $12,000 annually.
Partially through the year, Real Estate Syndication A sends word that renovations are complete on the property, and the sponsors are seeking to sell. Because this property is in a hot submarket in a growing metro area, the listing gets a lot of attention and is soon purchased.
Your original $50,000 investment from Real Estate Syndication A, plus an additional $25,000 in profits is received. Wohoo!
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%. This should yield about $18,000 annually in cash flow distributions ($1,500 per month).
By this time, Real Estate Syndication B (your investment from year 2) has completed its renovations and is sold. You receive your original $50,000, plus an additional $25,000 in profits.
Last year’s deals worked beautifully, so you decide again to roll that $75,000 with this year’s $50,000 all into Real Estate Syndication E, bringing your total invested capital to $300,000.
Now your monthly cash flow checks start really looking good, totaling about $2,000 (equivalent to some people’s net monthly salary).
Years 6 – 7
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 month, you get six cash flow distribution checks (for Syndications B-G), totaling $3,250 per month, or about $39,000 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, so all this cash flow isn’t being taxed.
Years 8 – 10
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 confident 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 mansions 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 $70,500 in diversified passive income per year. That’s more than the median household income in the US!
If you were to invest $50,000 a year into real estate syndications, THAT’s what happens.
What Life Looks Like in Year 10 and Beyond
At this point, you earn passive income of over 70K 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, swim with dolphins, enjoy yoga retreats, and stay in a glass igloo so you can dream beneath the Northern Lights. Good thing for those monthly 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 children’s school and in your community.
Perhaps the passive income funds a private school for your children, 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 heirs. 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 8%, and you may not be able to find a great deal to invest in right when you’re ready.
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 right after the renovations are complete.
You should also notice that the example didn’t include reinvesting the cash flow, which would further accelerate the growth. 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 how diligence and patience, together with compounding returns, can dramatically change the course of your financial future.
Investing passively in real estate syndications is NOT a get-rich-quick scheme. 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 check 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.
With personal investments, you make a difference in two to four families’ lives, which is wonderful. But with real estate syndications, you have the chance to change the lives of hundreds of families and whole communities with just one deal.
Each syndication creates a cleaner, safer, and nicer place for people to live and impacts the community and the environment positively. And that’s something you just can’t gain from stocks and mutual funds.
If you’re on the fence between active and passive real estate investments, the experience you gain from owning small rentals is irreplaceable. However, personally owning rental properties is not a prerequisite to commercial real estate syndications.
Either way, investing in real estate is a great way to diversify your portfolio and mitigate risk. It gives you an opportunity to have a positive impact on the families who will live in your units, as well as a positive impact on the environment and community.
Great illustration !
Glad you enjoyed the article Patrick!
This plan is great and something I’m working towards for sure. When the property gets sold, doesn’t that end your monthly rental distribution?
Yes Joanne, rental distributions stop when the property is sold. Many people re-invest the profits into a new building so the distributions start up again!