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A New Way To Travel Hack: Invest In Real Estate Syndications

Could investing in real estate syndications be the travel hack you’ve been looking for? Maybe you’ve racked up hundreds of thousands of credit card points and have taken extravagant round-the-world vacations in business class.

But once the dust settles and you return home, you have to start all over, applying for new credit cards, trying new travel hacks, and racking up points all over again.

What if you could find a more permanent solution, one that’s not just a travel hack, but a life hack?

Let’s Talk About Investing

One of the main reasons that people invest, whether in the stock market, real estate, or otherwise, is to create long-term wealth and to build a nest egg for retirement.

Retirement is exciting and all that, but for some, the idea of saving or investing for something decades down the road seems more like a chore than an adventure.

Now, I’m certainly not downplaying the importance of building a nest egg, but just for today, let’s set that aside for a moment.

Instead, let’s focus on something smaller and more tangible. Something that we can use to do a test run of this so-called passive income travel hack, to see if we can actually get it to work.

For this travel hack example, we’ll use a family vacation to the Bahamas.

Ah, the Bahamas. Endless white sand beaches, onsite childcare, sipping drinks out of a perfectly round coconut while paging through the latest issue of Real Simple. Mmmm. Yup, I can get behind that.

Okay, let’s get to work.

Mission: Travel Hack Our Way to a Free Family Vacation by Investing in Real Estate

For this real estate investing travel hack test run, let’s assume that we have saved up $50,000.

Instead of spending part of that $50,000 on the trip (and thus ending up with less than $50,000 once the vacation is over), let’s see if we can leverage that $50,000 and grow it so that we can cover the cost of the trip and still have the original $50,000 we started with.

 

In essence, we would be traveling for free.

Okay, you with me? Let’s say our goal is to be able to pay for a 2-week all-inclusive vacation to the Bahamas a year from now.

Hang on, lemme do a quick search on how much that would cost…

Okay, I’m back. According to my *extensive* search, a 2-week trip from San Francisco to Nassau, including both airfare and all-inclusive resort stay for 4 people, would be about $3,500.

Okay, so $3,500. That’s our goal. Okay, put down your credit card; we’re not going to use credit card points for this travel hack.

 

Let’s see if we can take $50,000 and “create” an additional $3,500 from it over the span of one year.

Off the top of my head, here are six potential ways to put $50,000 to work:

  1. Put the money in a high interest savings account
  2. Invest in a 1-year CD
  3. Invest in a dividend stock
  4. Invest in an index fund
  5. Buy a rental property
  6. Invest in a real estate syndication

Any guesses on which one(s) will win out? Let’s find out.

A New Way To Travel Hack: Invest In Real Estate SyndicationsA New Way To Travel Hack: Invest In Real Estate Syndications

#1 – High Interest Savings Account

This one is the most straightforward, and the one that most people turn to when saving up to take a trip. You find a bank that offers a savings account with a great interest rate, and put the money in there.

Not exactly a travel hack, but hey, it’s safe. And over time, it’ll grow, depending on the interest rate.

Let’s say that we were to open a savings account that pays out 2.0% interest. We deposit our $50,000 in there. By this time next year, we would have $51,000.

Hang on…can’t…contain…the excitement…

Okay okay, in all fairness, creating $1,000 in “free” money, without having to do any work, is not bad at all. That $1,000 might even be able to pay for a spa day and a fancy dinner or two. But, it certainly won’t cover the cost of the entire vacation.

Wah wah.

On to the next thing!

#2 – 1-Year CD

Another safe vehicle many people turn to is the CD, or certificate of deposit. If we were to invest in a 1-year CD at, say, 2.75%, at the end of one year, we would have $51,375.

Still good, just nothing to write home about, and certainly not enough for our Bahamian adventure.

The search continues!

#3 – Dividend Stock

What about a dividend stock? Could that be the travel hack we’re looking for? Investing in dividend stocks can produce reliable streams of income.

Let’s say we were to choose one of the most rock-solid dividend stocks to invest in: TD (Toronto-Dominion Bank), which has paid dividends since 1857 (that’s right, they’ve been paying dividends since before the Civil War!).

As I write this, TD’s dividend yield is 3.6%. Assuming that that number holds steady, our investment of $50,000 would grow to $51,800 over the next year.

Okay, we’re getting closer, but $1,800 still does not a Bahamian all-inclusive vacation make.

Next!

#4 – Index Fund

Okay, so maybe not an individual stock then. How about a bucket o’ stocks, like an index fund? Let’s try that.

Let’s say we were to invest the $50,000 into shares of the Schwab Total Stock Market Index Fund. Because, why not.

As I write this, the 1-year trailing return for this index fund is 6.51%. Hey, that’s pretty good, especially when compared with that 2.0% savings account.

But, over the last month, the fund has lost 7.41%. Wait, what?

Zooming out to look at historical performance, the 5-year average return is 10.71%. Oh, okay. That seems better.

What does all that mean? Well, it means that some years, returns are great, and in other years, the returns are not so great. Within the last twenty years, this index fund has returned as much as 33.36% (2013) and as little as -36.58% (2008).

So what will be its performance over the next year? Who’s to say.

If the 5-year average of 10.71% is achieved, then we would end up with a gain of $5,355, certainly enough to take our trip and perhaps even throw in a shopping spree.

But if the performance is less desirable, we could end up losing some of our original $50,000. Hmm…

So, given that our goal of taking a trip to the Bahamas is a short term goal, an index fund might not be the best option. If we were to invest long-term, we’d likely have a strong average return over time, making it a more worthwhile travel hack. However, given that we have a set target date, investing in an index fund probably isn’t the best travel hack.

What’s next?

#4 – Rental Property

Okay, so maybe the savings account, CD, and dividend stock weren’t quite up to the task, and the index fund might not be the best fit given the time horizon, but what about real estate? Let’s hop over to the world of rental properties and see what travel hacks $50,000 can get us.

If we were to invest $50,000 into a rental property, assuming we were to get a loan that lets us put 25% down, we could buy a $200,000 rental home.

Let’s say we were to buy a single family rental in Dallas, Texas, one with 3 bedrooms, 2 bathrooms, 1,500 square feet, and in a nice school district.

Let’s say that we’re able to rent it out for $1,875 per month. And, let’s say that our total monthly costs, including principal, interest, taxes, insurance, and property management, come out to $1,550.

That means that our monthly cash flow would be $325. Over the next twelve months, this would total $3,900 – enough for our trip! Woohoo!

But hang on a sec. Remember, this is assuming that there are no vacancies and no major issues with the property. If the hot water heater goes out, a major storm damages the roof, or the tenant stops paying rent, then we might fall well short of the projected $3,900.

So, if we get a good tenant in there who pays on time every month, we’ll be able to hit our $3,500 goal, with $400 to spare. If things don’t go according to plan, however, we might miss our target.

So, this travel hack is a maybe. Okay, what else?

#5 – Real Estate Syndication

One thing to consider with owning a rental property, is that there’s a fair amount of work involved, even if you have professional property management in place.

So, what about a passive investment in a real estate syndication instead?

Let’s say we were to invest $50,000 into a multifamily real estate syndication with an 8% preferred return. Over the next year, we would get cash flow distributions of about $333 per month.

By this time next year, we’d end up with a total of $4,000 in cash flow distributions.

The best part? As passive investors, we wouldn’t have to do any work to get those cash flow distributions. And, because we’re investing in a larger asset, versus a single family home, we can take advantage of economies of scale (e.g., if one tenant vacates, we still have the rents from the other units to cover it).

As passive investors, we would get about $333 per month, making our $3,500 trip well within reach. And the best part is that, with this method of travel hacking, after the first year ends and we take that trip to the Bahamas, we would continue getting $333 per month, which could pay for another trip next year, all without us having to count credit card points or deal with tenants.

A New Way To Travel Hack: Invest In Real Estate SyndicationsA New Way To Travel Hack: Invest In Real Estate Syndications

Conclusion

When you’re just starting out in the world of investing and trying to wrap your head around the different financial vehicles available to you, something as lofty as early retirement might seem too far out of reach.

 

Instead of writing the whole thing off as a fantasy, start with something small.

Maybe you can use a family trip as your target, just like in this example. Pick a location and some tentative dates, and price it out. Now you have a tangible goal to work toward.

While it can be tempting to game the system and try to score a free vacation through more traditional travel hacking methods, they can take a lot of work. In order to create a more stable, long-term solution to building wealth and generating passive income to pay for those vacations, consider investing for long-term growth.

To do so, start with a chunk of money. Not your entire life savings, but something that you’re comfortable playing around with, and see what you can achieve by putting that money to work for you.

Maybe you’d like to try out passive investing through a real estate syndication, or maybe you’d like to roll up your sleeves and buy a rental property.

Regardless of the travel hack or investing path you choose, it’s important to set your goal up front, measure progress toward that goal, and take stock of all that you learn along the way.

INVEST