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  • Rick Martin

What Happens When You Invest $50,000 Each Year In Real Estate Syndications


It does take some financial planning to end up in places like this each year.

Fifty thousand dollars is a ton of dough. Never mind fifty thousand dollars per year. You may be unpleasantly shocked to see that you blow close to 50k a year, once you add up all your lunches out, unnecessary dinners out, trips to Starbucks, cable subscriptions, clothes you didn't need. Not to mention a blind investment into a stock that went south instead of north. What if we chose that money to put it into something concrete, like real estate? What about real estate syndications? Hear me out. Once you see the potential results, I firmly believe you might be more willing to put forth the effort required to get there.


I know regular people with regular salaries do this and change their trajectories forever. So, as with most things in life, it's about resourcefulness, not resources. It is about where we spend our money. 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:


Year 1


While the first year may not be that exciting, it's 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 Atlanta, GA. Soon afterward, you begin to receive $250 to $333 per month in distribution checks, which is about 6- 8% (we'll start with some modest to average cash flow.


Year 2


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 Atlanta apartment complex from year one 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 useful $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 (assuming it is a blended 8% return).


Year 3


This year, in the early spring, you receive two K-1 tax forms. Now you are looking forward to tax season! Soon you invest another 50K into your third deal, real estate syndication deal C. Afterward, you begin to receive three distribution checks each month, totaling about $1000. You've boosted your yearly income at this point by $12,000 annually.


Year 4


Partially through the year, Real Estate Syndication A sends word that renovations are complete on the property, and the sponsors seek 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. Nice. 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 an average return of 8%, yielding about $18,000 annually in cash flow distributions ($1,500 per month).

Year 5


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 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. You show paper losses because of all the depreciation benefits, so all this cash flow isn't taxed.

Years 8 - 10


Another three years pass. The kids grow, you've checked a few life experiences 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 ten years. The first six deals have exited, each time leaving you with a healthy return to reinvest. Over these ten 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 various 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 a 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, trip to Europe. Those monthly distribution checks come in handy for this.


You can often donate 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, college fund, or helps fund an early retirement for you. Most of all, you rest comfortably with the confidence that you've created a lasting legacy for your heirs. Someday, they'll continue to invest and build their passive income. You won't have to worry about being a burden on them in your old age.


Disclaimers


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 effortless like it seems from this post. You can't predict exactly when a deal will exit, cash flow returns might not be consistently 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 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, further accelerating the growth. Rough calculations for capital gains taxes and depreciation recapture at the sale of each property have were used, though the operative word here is "rough." In the end, it's implausible that you would see these exact numbers. The numbers could be slower to grow, or there could be much faster growth. This article only demonstrates how diligence and patience, together with compounding returns, can dramatically change the course of your financial future.


Conclusions


Investing passively in real estate syndications is NOT a get-rich-quick scheme. Investing in real estate syndications is a long-term strategy that should build 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.


The next time you think to head to Starbucks, go out to dinner when you could have made it at home, bet it all on black by investing in Krypto currency, consider something more tangible. Something that will move the needle forward and get you to a place in life sooner than you may have expected. This $50,000 method is a predictable, operable, seemingly magical process anyone can implement to begin their syndication path. That's why I am investing in these.


If you’re interested in investing in apartment communities on your path to early retirement a great place to start is by joining the Fortress Federation Investor Club. Sign up for our Comprehensive Quickstart Guide to Investing in Syndications below, to get up and running quickly.