Multifamily Investing and Its Exponential Returns: Enough to Retire from A Doctor's Salary?
$5,000,000. Could you retire on that? The beautiful thing, is once you get the syndication machine rolling, you no longer have to think in fixed numbers like a paltry $5,000,000.
I was following up with a reference for a syndicator. I needed to dig deep to find out whether this operator was both qualified and trustworthy enough to invest my hard-earned money. For whatever reason, I was not looking forward to going through my list of questions with the reference. Quickly the conversation became fluid as it often does with real estate. People who are in real estate, love talking real estate. Not only was it fun talking real estate, but it quickly became inspirational. At the time, I wondered if you could become financially free investing as a Limited Partner in syndications (investing passively)? We have that number in mind that will free us from our job. For some, it is $5k a month, for others, it is 10k, and maybe for you, it is 20k. This person had been investing in syndications for 8 years. He said he "freed up" after only three years. He did so by funneling his money into syndications. When there was a sale or refinance, he would just redeploy that capital. Along the way, he began to have enough cash flow, that he was able to quit his job – and he was a doctor! Now I am not an advocate for all doctors becoming financially free, and thus leaving the world without doctors. Still, they do tend to make a good salary, so this impressed me. Then he laid out the following nugget.
He used 3000 units as his example, but let’s reduce it down to 1000 units. What if you were vested in 1000 units, and the operator or operators raised the rents or reduced their expenses by $25? Next, do some math. 1000 units x $25 = $25,000. $25,000 x 12 months = $300,000 annual increase in revenue. Presume the markets you are invested in are yielding a 6% cap rate. Divide $300,000/.06%... $ 5,000,000. Could you retire on that? Okay, there is a problem with his example. You would literally have to own 1000 doors to reap these exact returns, as opposed to investing in different apartments that totaled up to 1000 units. However, the exponential factor of increasing the NOI (Net Operating Income), thereby improving your cap rate still applies. Obviously, the more dollars you have in the investment - the skin in the game – the more impactful your own dollars will become. The point is, when you are working with that many doors, your dollars are going to increase quickly and exponentially. And the beauty is not only in its growth potential, but also, it's diversification.
The beautiful thing is once you get the syndication machine rolling, you no longer have to think in fixed numbers (like a paltry $5,000,000). You can keep redeploying your capital with the right operator, in the right deal, in the right market. You can live off the cash flow, and put the rest away for a rainy day. This is what this doctor - a surgeon - had done. I heard one investor refer to it as a syndication ladder. Eventually – maybe in as little as 3 to 5 years – you will become financially free. You may not only do great things for your family, but for charities and society in general. Okay, and maybe an annual trip overseas.