Would You Like to Make $100,000 in a Few Hours Investing in Real Estate?
We often see these cheesy headlines. Make $100,000 in little to no time! Honestly, though, I think I found a great way to do just that. Right now, you are thinking, ok, what is the catch? There is a catch, and it's a $100k catch. To make this seemingly easy $100k, it will require you to invest a down payment of $100k. If that is too much money and you are happy with $50,000, you will need to invest $50k. Now all kinds of red flags are going off in your mind. You are picturing me on some infomercial, preaching not only a good deal but a deal you cannot refuse. "Please get those credit cards out!" you hear me say.
As we all know, though, there is no easy buck. We need to look out over the long term on this strategy that I am about to share. Still, it will only cost you a few hours of research. If the first catch is investing, what some might say, is a lot of money, the second catch is it will take you about five years (sometimes more / sometimes less) to earn that extra $100k. So if you have some capital to invest and can be patient for five years (making about 20% per year) for just a few hours of reading and listening, you can double your money in five years. It may not be the fastest way to make $100k, but it may be the best way (in my opinion). So in this article, I will share how you can make $100k with just a few hours of research, how it works, and who can do this. Finally, I talk about how procrastination is not your friend.
How Do You Make $100k In A Few Hours Investing In Real Estate?
So let us end all of this suspense. I am talking about investing in commercial real estate syndications. If you are a real estate investor, you are probably familiar with a real estate syndication. Essentially it is a group of investors coming together to invest in a significant asset, such as a large apartment community, and having a group of managers run it like a well-oiled machine. Having enough capital behind the project allows these managers to take advantage of economies of scale and hire professional, third property management. This allows them not only to increase revenues but take advantage of operational efficiencies to reduce expenses. Revenues minus expenses is called the net operating income (NOI), which produces cash flow for the investors after taking out the mortgage.
In addition to improving the cash flow, the management team also enhances the asset, increasing the property value. The combination of improved cash flow, and a rise in property value, increase investor returns. This way, you enjoy the cash flow from the rental income, profits from sales, and the tax benefits, all without the headaches of managing properties yourself. Once you repeat this strategy and invest in numerous syndications, you will see your passive income build so that you can begin to enjoy the more important things in life. If you plan your strategy wisely, you will be well on your way to financial independence, no longer anguishing over your nest egg. You see, a nest egg is finite, but the income streams you create by investing in syndications are repeatable, and what's better, sustainable.
The sheer size, professionalism, and economies of scale are what separate investing in syndications from residential real estate - your average investment property. An equally important factor is the ability to control the value of the investment by improving the net operating income. The value of a single-family home is based solely on comparable properties (the comps). Thus, whatever the market yields are what your property is worth. With multifamily, and more specifically apartment syndications, we can take matters into our own hands and not rely upon the whims of the market. By increasing revenue and reducing expenses, we increase Net Operating Income (NOI), which increases the value of the property.
How Does It Work, And How Long Will This Take?
In a nutshell, it works like this. You must first sign up on an apartment syndicator's investor list. At some point, a deal alert will come into your inbox. That email will contain an investment summary, which is a prospectus on the deal itself, as well as the team running it, and the local market. You may spend your first hour or two here, looking over the deal. A webinar or video presentation will then go over the deal's strengths and answer any investor questions. This will typically cost you another 45 minutes. Once you decide this seems like a good idea and an even better investment, you will go to the investor portal, where you will review documents. These consist of the private placement memorandum, operating agreement, and subscription agreement. These are primarily legal documents, and I won't sugarcoat them. They are long, tedious, and necessary.
They go over the risks, and how the deal will be operated and structured. Once you read through these legal documents once, the good news is you will see that most of these documents will become familiar from the deal to deal so that you will get through them more quickly. Still, you will more than likely want to devote an hour or so to this.
The final step will be wiring your investment, which can be instantaneous, depending on how you set it up. This could take anywhere from five minutes to a half hour. Total it all up and we are talking 4 to 5 hours to make an incredible return on your investment.
So How Much Will I Make Investing In An Apartment Syndication?
No one can guarantee returns, and there's risk associated with any investment. Having said this, it will give those who are curious a rough ballpark of the kinds of returns you might expect.
Apartment syndication is a non-liquid investment. 1) We start with the hold time. It can range from 3 to 10 years, but you will find the most common hold time to be 5 or 6 years.
The cash flow is what's left after you factor in vacancy costs, mortgage, and expenses, and it's the pot of money that gets distributed to investors, usually quarterly. 2) The first source of income is the cash-on-cash return or COC%. The most common COC percentage I see most deals shoot for is 8%. That is, if you were to invest $100,000, the projected cash-on-cash returns for each of the five years would be about $8,000. Thus, Cash flow comes out to approximately $40,000 throughout a five-year hold.
In a value-add scenario, the units get updated, the tenant base improves, and rents rise to market rates. Operational efficiencies can also result in lower expenses, so we increase the NOI with higher rents and lower costs. Higher NOI ÷ the prevailing cap rates result in increased profit at the sale. 3) Projected Profit Upon Sale: 40-60%. How much? It is tough to predict, but you will often see a 60% increase over a 5-yr hold. Divide that 60% by five years, and you have another annual 12% from the profit at the sale to add your 8% COC%.
The math comes out to a 20% average-annual-return multiplied by five years for a 100% total return. The ballpark result is doubling your money every five years. Not an exact science, but it does give you an idea.
Can Anyone Invest In A Syndication?
Contrary to popular belief, real estate syndications are not only available to those with a high six-figure income and high net worth. Are you familiar with the term Accredited? To be an accredited investor, a person must have annual revenue exceeding $200,000 as an individual, or $300,000 filing jointly, for each of the last two years. You can also qualify as accredited if you have a net worth exceeding $1 million, excluding your primary residence. Have no fear if you do not meet these guidelines.
A sophisticated investor can also invest in syndications and has in-depth investment experience and market knowledge that makes them eligible for certain benefits and opportunities. They also must have the financial wherewithal to invest. The financial requirements to invest are more loosely defined. I always tell a passive investor not to invest more than 10% of their net worth, so if the minimum buy-in is $50k, you should have a net worth of $500k or more. So yes, this goes well beyond your emergency fund.
If I have some extra money, one might ask why not just invest in the stock market? Having had some personal experience with commercial real estate investing, or private investments into syndications, I can say it is an excellent way to grow your wealth and leave the day job behind. I can also say it is much less volatile and more predictable than owning individual stocks. Additionally, syndications experience better overall returns, I love that it pays you cash flow every month, giving you additional income streams. Some may argue that mutual funds are passive. They may be passive, but do they pay you consistent passive cash flow, earn you solid, double returns, and allow you to reduce your taxable income? In a word, no.
Why Not Own A Bunch Of Investment Properties?
I will speak from experience here, as I have owned rental properties. It begins with one rental property, and then another, and then another. Are you starting to get a sense of how many rental properties you might need to add to your investment portfolio to exit the daily grind? Each property may cash flow $200 to $300 a month after all expenses. I can tell that each of those properties will require infinitely more time than the few hours I have suggested to earn your $100k. Even if you have a property manager in place, you will not be able to escape the hours and headaches of a semi-large portfolio of rental properties. I can share stories of Goth Fire Parties, tenants threatening my life, a roach motel, professional tenants squatting for six months without paying a dime. Not to mention dinners, vacations, and sleep being interrupted.
So, in addition to it only costing you a couple of hours of due diligence when buying into syndications, it will save you a ton of headaches and some of the situations mentioned above you might face.
Procrastination Just Cost You That $100,000.
People spend countless hours on a deal by the time you have received the investment opportunity in your inbox. Sourcing, underwriting, acquiring, performing due diligence, securing the loan, putting professional property management in place; it is a lot. In the syndicator's mind, we provide an opportunity to earn a great return, get paid cash flow, and accelerate your wealth. You are having the chance to make $100k over five years, for doing a few hours of reading ( the investment summary) and listening (to the webinar), plus a little due diligence on your own. It sounds like a pretty good deal.
Having the money to invest is one thing. You either have it, or you don't. However, time? Time is no excuse - we can always make time. Yet I hear it over and over. "I am just too busy now," "no, I haven't looked yet, but I will," "it's been a crazy week!" I get it. I have been there. But if I stop to consider the consequences of not putting in a bit of time (Putting into what amounts to a few hours). Well, it may just cost me an opportunity to add another $100,000 to my net worth.