So, you’re a high-income earner looking at real estate—or maybe you already own a rental or two. You’ve seen the benefits: some cash flow, tax breaks, and a sense of ownership. But you’ve also noticed the downside: single-family rentals don’t really make that much money, and they can be a lot of work.
If you want the benefits of real estate without the headaches of being a landlord, there’s another way. Today, I want to show you how passive investing in multifamily syndications can be the path to building wealth, creating income, and ultimately reaching financial freedom.
In this article, I’m going to show you exactly how much you need to invest each year to create enough passive income through real estate to quit your job in the next 5–10 years. I do that by walking you through a calculator I created. You can download it at the bottom of this article.
The Issue I Have With Traditional Investments
I used to be a software engineer getting paid six figures a year. I wanted to build wealth through real estate, just like it says in Rich Dad Poor Dad, but I didn’t want to be an active landlord. My job already took up enough of my time away from my family – I didn’t want to spend more of it managing tenants and properties.
So I also looked to put money in stocks, so it could sit and grow – despite some volatility – over time. But with the market going up and down, it was incredibly difficult to do financial planning. And neither option really generated a lot of cash flow. Plus, with stocks, I would have to pay taxes every time I got any kind of gain.
And the thing that bugs me about that situation is that so many other people experience the same thing. You’re stuck in this cycle where you either have to choose between being hands-on with rentals that eat up your time, or staying in the stock market rollercoaster that doesn’t give you the control or cash flow you want.
How Much You Need to Invest in Real Estate to Retire
A great alternative I found – and the solution to the cycle above – is passively investing in real estate, specifically in apartment buildings or any kind of commercial real estate. This is done through something called a syndication, where a general partner does all the work, and you come in as a limited partner (or LP) and provide the capital.
This allows you to be much more hands-off because the general partners or operators are doing all the work, and you’re getting the benefits. You’re getting cash flow, typically 5 or 6%. You’re getting appreciation, and you’re getting significant tax benefits through accelerated depreciation.
Also, through syndications, you can participate in something called a 1031 exchange. That simply means you basically keep your gains in real estate and roll your profits into another deal without paying taxes on it.
Breaking Down the Numbers
I created what I call the passive investor calculator to show you exactly how this works. Let me break down the modeling for you.
In this model, I assume you’re investing about $100,000 a year for 10-plus years. But you can input any value you’re comfortable investing each year.
You’re getting a cash-on-cash return of 5%, and the profit at sale averages 10% annual return. So basically, you’re looking for 15 to 20% average annual return, which means you’ll double your money in about four and a half to five years.
Here’s how it works: if you invest $100,000, you should expect to get a check for $5,000 per year from cash flow. The remainder of your average annual return comes from profits at the end when properties sell, typically after a five-year holding period.
The Beautiful Compounding Effect:
- Year 1-5: You’re building your portfolio, reinvesting cash flow
- Year 6: You start making six figures in annual cash flow
- Year 10+: You’re generating around $240,000 per year in passive income
- Your net worth grows to $2.6 million
You can download the calculator here.
And for a visual walkthrough of the calculator and how to use it, watch my video here.
Your Timeline
The more money you keep through tax benefits, the faster you can build wealth. You can diversify your portfolio beyond the stock market and create predictable cash flow that eventually exceeds your current income.
Using this calculator, you can see exactly what your cash flow and net worth will be. You’ll know that if you invest this much, after five years you’ll approximately get this much cash flow and build this much net worth. It’s a really cool tool that might get you excited about exploring and investing more regularly in syndications.
I hope you enjoyed this article and can now lay out a timeline for your passive investing in real estate.
To your success,
Michael Blank