I was speaking with a friend this past week. He has always seemed pretty happy in his career. He told me he isn't looking for added income streams (no, I wasn't selling him on syndication), and it got me thinking. Some people are lucky to find gratification in their work and get paid handsomely for it. But is it still reason enough to not have your money continuing to work hard on its own? Remember, as you earn more and more income, you generally acquire more and more expenses in mortgages, car payments, toys, and activities. You've amassed this budget, and now you need to work to keep up with it.
It goes back to: Stop having to trade your time for money. You know those people who say, "if I won the lottery, I honestly would keep working at my job." With all due respect, if you are one of those people, you are nuts. Or, maybe you are just lucky, and you are doing what you love the most, but even if you are – why not get that money working wisely, so if something happens to that ONE income stream (your job) – you are good.
I am not saying we should all want to retire on beach like the guy up there in the photo. I am saying that if money was no object, what would you choose to do with your time? Having the power to choose.
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Why don't people want that added wealth and security, I wonder. I think it comes down to a couple, three things. One, they don’t think they have the time to learn about his “new” way of investing, Two, fear of the unknown, and finally, three, lack of trust.
So how can we counter this? If you are a busy professional or parent and want to start accelerating your wealth and adding income streams, you want low effort, low risk, and cash flow.
#1 - Little Effort
Some of you may know that your first passive investment into syndications doesn't feel so passive with the initial due diligence and setup. While it pales in comparison to an active real estate investment, some initial steps may feel overwhelming at first.
First, you see the deal highlights, then take a deeper dive into the investments summary, followed by vetting the sponsor and market, and just when you are at a comfort level to sign on the dotted line? You are welcomed with 100 pages of legal documents, all of which are designed to scare you btw. It's the fine print we don't read when buying a stock.
However, once you wire your money and set up your information for receipt of funds, you indeed are on easy street. Trust me when I say it can be set and forget it, although many will track their distributions and diligently read their monthly updates.
You contrast this with meeting brokers, calling on property managers, wading through insurance, hiring contractors, purchasing materials, choosing finishes, vetting tenants, and on and on. You get the point.
If you are a full-time real estate professional, it makes sense to take on this responsibility. However, most of us are busy in our careers or shuttling children from soccer to baseball to piano to tennis to swimming.
For those of us that fall into the latter category, we want an investment that, yes, accelerates our wealth, pays us cash flow, gives us tax advantages, but requires minimal effort.
#2 – Diversification of Risk
Just as buying a stock carries a much higher risk than buying a mutual fund or ETF, so does purchase a single-family home compared to buying into syndications. I say it a lot: when your single-family home loses your tenant, you are 100% vacant. When you lose one tenant in your 100 unit apartment, you are 1% vacant.
Now consider buying into several syndications with several hundred doors. You are spreading your risk. Plus, you are leveraging the economies of scale and professionalism that come with it. Large scale, 3rd party property management have systems and operations to mitigate costly logistics and materials.
#3- Cash Flow
We are not in new development. The reason for this is the ability to cash flow from day one with value add. Mind you; there can be a value add deal where cash flow is delayed and situations like COVID-19 that can pause it. But for the most part, we seek deals that cash flow before any improvements.
Cash flow is a form of return that we can count on; that can spend. It is a realized return. Appreciation is the quickest way of accelerating wealth, but there is a certain amount of speculation involved. Getting paid on a monthly or quarterly basis is a beautiful thing. It never hurts to have a little (or lot) extra coming in to help pay for those children's activities, vacations, or dinners out. All while steady improvements in the building and operations grow your investment in the background.
Attractive Investments
Investing passively in reals estate syndications has met my requirements of being little effort, diversified risk, and having positive cash flow.
I like the idea of having an experienced team in place working the renovations and following the business plan on my behalf. They do the tough stuff while I receive the regular cash flow distributions, tax benefits, and progress reports. I can grow my wealth without taking on a second job.
It is about me not missing my kids' grow up but still being able to grow my wealth. If I am working, I cannot do both. It isn’t getting rich overnight on cryptocurrency or Tesla stock, but it can be exhilarating to imagine five years out when these syndications start to sell. I'm not going to tell my friend he should be looking for additional income streams, but I wish somebody would. He's missing out.