“An investment in knowledge always pays the best interest.” — Benjamin Franklin
Today we’re going to talk about the best investment you’ve probably never heard of.
In fact, I would say that 95% of Americans have never heard of this.
It offers higher returns in the stock market, lower risk and volatility, and inflation hedge during times of inflation.
It also has some amazing tax benefits!
So what is this mystery investment that I’m talking about?
It’s called multifamily syndication.
Now, when you hear those words, you might just check out.
You might not really care what that is.
I also did this once upon a time!
But I really encourage you to pay attention.
Multifamily syndication can be life-changing.
This is not an active strategy.
For those who don’t know:
An active strategy is something you have to actively manage.
Think of things such as a stock portfolio or options trading.
Multifamily syndication truly is passive.
My passion is helping you achieve financial freedom.
I want to help you live your life the way you want to.
I even created the Mailbox Money show to talk about all the research I’ve done into passive investing and asset classes.
Of all the asset classes I’ve covered, multifamily syndication is by far the best.
Let’s jump right in!
How Does Multifamily Syndication Work?
The first thing you want to do is buy a large apartment building.
Well, okay not really you.
You want to join a team that purchases a large apartment building.
When you join a team, it’s called a GP/LP split.
GP is a general partner and LP is a limited partner.
When our group buys buildings and operates them, we are the general partner.
We will go to investors and raise money for the deal.
We also have limited partners that come in who are not part of the operations team.
They don’t get the calls when the toilets are having issues.
They don’t try to make the financial asset perform more efficiently.
That’s the role of the general partner.
General partners typically invest their time and their money.
After we buy an apartment, we try to add value to the property.
The value of apartments depends on how much income the property is producing.
There’s typically a lot of turnover in apartments.
In a hundred-unit apartment building, 5-8 people will move out each month.
When those people move out, you come in and do renovations.
Each unit should roughly cost $5,000-$10,000 to renovate.
You put new floors in, do some painting, and you’ll increase the value.
This will also increase the rent as new folks move in.
People will gladly pay more because they want to live in a nice, updated place.
When you increase rent, it dramatically increases the value of the property.
Typically, we hold these buildings for three to six years.
In that time, the property appreciates just from market appreciation.
What we do is forced appreciation, where we come in and add more value.
There are some incredible benefits when you invest in multifamily syndication.
And don’t forget — this is all very passive!
This is the perfect type of investment for professionals who want to increase their investments while also having time for their careers.
The diligence really is on the front end.
You receive the cash flow along the way, which is really awesome!
Higher Returns with Lower Risk
There are significantly higher returns in multifamily syndication versus stocks or other investments.
Stocks typically yield about 6-8% per year.
Some may be making 20% per year on their portfolios, but be wary of this!
Always count the down years, because those are what destroy returns.
If you were able to only do the up years, maybe you’d do much better, but that’s a challenge.
You also have fees and taxes involved.
In multifamily, it’s very common to see 10 to 20% returns per year.
Usually, higher returns equal higher risk.
In this case, it’s not actually true!
Lower Risk and Volatility
Warren Buffet famously said: “Rule No. 1: Never lose money. Rule No. 2: Don’t forget rule No.1.”
So whatever you do, you don’t want to lose money.
2009 was the worst point in the Great Recession.
Everything from stock to real estate was hit super hard.
A lot of people think that real estate is real estate, right?
They think single family is the same as multifamily.
It is actually very, very different.
In 2009, we had a single family delinquency rate.
This means people are 60 days behind on their payments or there is a foreclosure rate of 4% nationwide.
That’s 1 in 25 houses!
During that same period, large multifamily (meaning 60 units or more in a building) was 0.4%.
That means 1 out of every 250 were in default or foreclosure.
Compared to single family, multifamily was 10 times less.
Why is that?
Think about it.
If people lose their houses, where do they go?
They go to multifamily apartments.
Even in good times, everybody needs apartments.
There’s a supply and demand issue right now.
The population is growing continually.
We know we’re going to need 4.6 million more apartment units by 2030 according to www.weareapartments.org.
Construction costs will go up.
Inflation is going up as we speak.
These apartments will become more valuable over time.
This means that rents will continue to rise.
If you take a look at this chart, you can see rents of the last 50 years adjusted for inflation.
There’s a long-term trend that shows an increase in income from these properties.
The value of multifamily syndication is based on rents so the income potential is really, really solid.
You can see on this chart the volatility that happens when you’re investing in stocks.
The numbers speak for themselves!
Tax Benefits of Multifamily Syndication
To go along with this section, you can check out this video I did about the tax benefits of multifamily syndication. Now, I’m not giving you any specific tax advice (consult your CPA) but it’s important for your to learn about.
The first thing is depreciation.
So when you own a house, you can write off the entire cost over a number of years.
This gives you a substantial benefit on your taxes.
You can do the same thing with multifamily.
The only difference is what’s called a cost segregation study.
This allows you to bring all those 20 to 30 years losses forward to year one.
Think of it like passive tax loss.
So how does that really look?
Let’s say you invest $100,000 into a multifamily deal.
On paper, it often will show a $60,000-$80,000 passive loss during year one.
It’s just saying this on paper.
Over the next five years, let’s say that this property has $50,000 worth of cash flow before the property sells.
What you can do is use those passive tax losses toward those gains.
Multifamily allows you to use the money for the next five years and not pay any taxes until the property is sold.
At that point, there is something called a recapture, where you recapture the depreciation.
Some people will pay taxes, which is totally fine!
If you get into other deals, you have the option to use these passive tax losses to continually defer taxes.
If you ever have a chance to defer or reduce taxes, it is much better than the alternative.
That’s why things like retirement accounts can work amazingly well.
A multifamily syndication allows you to do this in cash accounts or retirement accounts.
I live in California, which has very high taxes.
The highest tax rates are sometimes over 50%!
I have many friends that make a lot of money, but they pay really high taxes.
It’s very difficult because no matter how much you make, you’re continually getting pulled down by paying higher taxes.
In the last several years, I’ve legally paid almost no taxes.
How did I do that?
Well, it’s by using this strategy and being a real estate professional.
Most people have two buckets.
You’ve got a bucket that represents regular income.
You put the money you make from your job in there.
This bucket is going to be taxed at whatever level it qualifies for.
The second bucket is the passive income bucket.
If you can put money in this bucket and get those higher returns, your money will double every 5 to 7years.
Isn’t that incredible?!
It grows on a tax free or tax deferred basis.
If you can start putting money in your passive income bucket, it can really create financial freedom.
I’ve watched people do this that make hundreds of thousands to millions of dollars per year.
They’re able to put money into passive income.
They’re able to develop the confidence of what it looks like to invest passively in multifamily syndication.
Multifamily is an incredible inflation hedge.
Today, it’s crazy how much money is being printed.
In fact, 40% of all the dollars in existence were printed in the last 18 months.
That is absolutely astounding!
There are ways that you can profit from this, which you can check out here.
So what happens when you have inflation?
The value of the dollars you hold goes down.
It penalizes savers.
As inflation picks up, we don’t actually know how high the number is.
Is it 5%?
Is it 10%?
Any way you slice it, you’re losing.
Specifically, you’re losing 5-10% of the cash you hold.
When you own assets such as multi-family real estate, there’s a hedge there.
There’s a protection.
It doesn’t affect you in the same way if you were to just hold cash.
This is because it’s a real asset.
In short: You are protected in the time of inflation.
How does this work?
How do you use debt to increase your wealth and have a strategy to combat inflation?
The average purchase price for multifamily properties is at 70-80% with debt.
For example, let’s say we have a $12-$15 million property.
We owe $10 million on it.
This sounds like a lot of money, but tenants are paying the rents.
Essentially, they’re paying for the mortgage and then there’s money left over.
Over time, the value of this property is going to increase.
Because of inflation.
We’re adding value by renovating units and increasing the rents to match those nicer units.
We’re also paying back the debt with future dollars.
So what that means is we’re getting long-term fixed debt and paying it back with that money.
The dollars in the future are going to be worth less.
This allows you to both increase the value of the property as well as pay everything back.
It’s basically a double positive, right?
What it effectively allows you to do is to short the dollar.
When you short something you believe the value will go down and you want to profit on that.
So when we say we want to short the value of the dollar, we’re saying we believe the dollar is going to go down.
How we get behind that is we take on debt.
We see the value of those debts becomes less over time because the value of dollars becomes less over time.
There’s a guy who did this in 1920s Germany called the Inflation King.
He went out and took out a ton of debt on different businesses.
He profited substantially and paid off the money in future debts.
He did this all when money in Germany was practically worthless.
I’m not saying that we’re going to hyperinflate here in the U.S.
But we are going to have a period of significant inflation and it could get potentially worse.
Being prepared in any way is really important!
I hope this post gave you some new ideas.
Maybe this is all new information for you.
I do want to genuinely say thank you for taking the time to educate yourself.
That really is the best investment that you can do!
I wrote this free report that talks about all this stuff more in detail. It compares the stock market to real estate, and it also includes how the pandemic affects your investment future.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.