Okay okay, I get it. Fifty thousand dollars is a lot of money, never mind fifty thousand PER YEAR. But just hear me out. I think once you see the potential result, you might be more willing to put in the work it takes to get there.
My first job out of college was as a fourth grade teacher with Teach For America. Two weeks in, I was dead tired and completely overwhelmed, yet proud to be contributing to closing the achievement gap.
I got my first paycheck, and it only fueled my sense of purpose. For all the work I was putting in, I was taking home a mere $12 per hour.
Still, my husband and I were committed to building a solid financial foundation, so we lived a frugal lifestyle, living on only my teacher’s salary and depositing 100% of his paychecks.
We ate a lot of pasta in those days.
We saved. A lot. And if we’d known about real estate syndications (i.e., group investments) and the magic of compounding back then…well, I’d be writing this from a mansion overlooking the ocean.
Just kidding. My kids would totally smear their handprints all over those beautiful floor-to-ceiling windows anyway, making me curse under my breath as I trip over Legos to go Windex the windows for the seventh time today. #momlife
Okay, back to the point of my pasta-eating teacher salary story. My point is, if you put your mind to it, it’s entirely possible to save $50,000 per year, or even more. As they say, it’s not about resources; it’s about resourcefulness.
In this article, we’ll talk about what would happen over the span of 10 years if you were to invest that $50,000 per year into real estate syndications.
This is the first year, so there’s nothing too exciting here. You save up $50,000 and invest it into Real Estate Syndication A, a 350-unit value-add multifamily property in Dallas, Texas.
Soon after, you start to receive monthly cash flow distribution checks of about $333 per month (this comes out to about 8% per year, which is fairly standard for most of the deals we do).
A modest start, to be sure.
In the spring of the second year, you receive the Schedule K-1 for your investment in Real Estate Syndication A (the K-1 is the tax document that shows your income and losses for your investment).
Through the magic of cost segregation and accelerated depreciation, your K-1 shows a paper loss for Real Estate Syndication A, even though you were getting all those monthly cash flow checks. Because of this, you get a hefty tax write-off, which you can use to offset not just the cash flow returns, but your ordinary income as well.
Later that year, you invest the $50,000 you save in year 2 into Real Estate Syndication B. Now you’re getting $666 per month in cash flow, $333 from each of the two syndications you’ve invested in.
This year, you’re expecting not one, but two K-1’s, so you start to look forward to tax season, due to all the write-offs.
You invest $50,000 into Real Estate Syndication C. You start to receive three $333 checks every month, totaling about $1,000 per month, or $12,000 per year.
About halfway through the year, you get word from Real Estate Syndication A that the renovations are complete, and the sponsors are seeking to sell the property. Because this property is in a hot submarket in a growing metro area, the listing gets a lot of attention and is soon purchased.
You receive your original $50,000 from Real Estate Syndication A back, plus an additional $25,000 in profits.
You 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 means that you’re now expecting about $18,000 per year in cash flow distributions ($1,500 per month).
In year 5, Real Estate Syndication B has completed its renovations and is sold. You receive your original $50,000, plus an additional $25,000 in profits.
You combine that $75,000 with the $50,000 you save in year 5, and you invest that all in Real Estate Syndication E, bringing your total invested capital to $300,000.
This means your monthly cash flow checks would total about $2,000 (which, sad to say, is now almost rivaling my net monthly teacher’s salary from all those years ago).
Okay, now that you’re getting the gist of it, let’s speed it up a bit.
In years 6 and 7, Real Estate Syndications C and D are sold, respectively. Each year, you add $50,000 of your savings to the returns you receive from those exited deals. In year 6, you invest $125,000 into Real Estate Syndication F, and in year 7, you invest $125,000 into Real Estate Syndication G.
Now, you have a total of $487,500 invested. Every month, you get six monthly cash flow distribution checks (for Syndications B-G), totaling $3,250 per month, or about $39,000 per year.
You’re now nearing my GROSS teacher’s salary. It’s like you’ve got an invisible worker in your home generating income but not adding to any of your expenses. And remember, because of all the depreciation, you’re continuing to show paper losses, so you’re not taxed on any of the cash flow you receive.
Another three years pass. You look in the mirror and see lines that didn’t used to be there. But then, your phone buzzes to let you know that another cash flow check has been direct-deposited, and you make a mental note to buy a fancy face cream with that passive income.
You’ve now been investing $50,000 every year for 10 years. Six of the deals you’ve invested in 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 could have put that $500,000 into a down payment on a $2.5 million mansion, maybe even that one overlooking the ocean. You’d only have to pay $10,000 or so every month for the next 30 years, no biggie.
But hey, you didn’t. You chose to invest that $500,000 instead, because you’re smart and savvy like that.
So let’s do the final round of math, shall we?
In each of years 8, 9, and 10, deals exited and left you with healthy returns to reinvest. By the end of year 10, you now have over $880,000 invested in multiple real estate syndications across multiple markets and asset classes, producing $70,500 in passive income per year. That’s more than the median household income in the US.
What Happens When You Invest $50,000 A Year Into Real Estate SyndicationsWhat Happens When You Invest $50,000 A Year Into Real Estate Syndications
This is what would happen if you were to invest $50,000 a year into real estate syndications.
What Life Looks Like in Year 10 and Beyond
You are now making over $70,000 per year in passive income, and that figure grows every year. You love what you do, so rather than quitting altogether, you switch to freelance work, giving you more flexibility to take longer trips with your family.
When you travel, you’re able to splurge for fun once-in-a-lifetime experiences, like taking your kids to swim with dolphins for a day, going on an immersive yoga retreat, or staying in a glass igloo so you can fall asleep under the Northern Lights.
You’re able to give more freely to charities and non-profit organizations that you love. You have more time to volunteer at your children’s school and in your community.
Perhaps you use the passive income to send your children to private school, or you hire a personal chef, or you pay to move your parents to a nicer place.
Most of all, you rest easy knowing that you’ve created a lasting legacy for your children. 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.
And best of all, you’re able to be your true self and to live life on your own terms.
All right, I’m guessing you know most of what I’m going to say here, but I’m going to say it anyway.
Real life investing is not clean. You can’t predict exactly when a deal is going to exit. Cash flow returns won’t always be exactly 8%. You may not be able to find a great deal to invest in right when you’re ready.
This scenario 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 know that the numbers in this scenario don’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 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.
The chart above is not meant to be a prescription. Rather, it’s meant 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 great strategy for helping you build wealth slowly but steadily over a long period of time.
It’s almost like farming. You have to plant the seeds, then wait a good long while before you reap the rewards. But with diligence, your bounty will continue to grow and compound over time.
My husband and I started investing in real estate over ten years ago. I wish someone would have laid out a plan and strategy like this one for us at that time. Instead, we dabbled in house hacking, private lending, and out of state rentals.
We knew that real estate was worthwhile, but we didn’t know which path was best for us. Some investments were wins. Some were huge headaches. It definitely was not a predictable nor methodical strategy.
However, I’m grateful that our journey has gotten us here, to this point in our lives, when we can look forward to the next ten years and plot out a much more stable, intentional, and low-hassle path toward growing our passive income and wealth.
And that’s why we’re investing in these syndications right alongside you, one $50,000 check at a time.