We will be looking at the tax benefits of real estate investing next. T.S. Elliot said April is the cruelest month.
Here’s What Investing $50K Annually as a Passive Real Estate Investor Would Look Like in 5-10 Years.
What’s your favorite number?
Ask any passive real estate investor, and they’ll likely say $50,000.
At least, $50,000 is mine. It will be yours too after you’re done with this article.
$50,000 is a Magical Number for passive real estate investor
When you’re looking into real estate syndication or apartment syndication, most of the buy-ins start at $50,000.
Sure, sure, $50,000 IS a lot of money. But if you only knew how much money it could turn into through real estate syndication investments, you’d do whatever it takes to save that lucky number up as fast as you can.
Back in San Diego, just after Henry and I married we moved into his apartment. He shared it with a roommate, and we were fine with this arrangement because it meant we could save money for our first home together.
We ended up buying our first home, and then a handful more before we embraced the beauty of real estate syndication. When I think back to the down payment on a house, and where that money could go if we saved just a little bit longer to that magical 50,000 – well, I’d likely be living on our own island, probably going stir-crazy and sick to death of coconuts.
Perhaps things all turned out well in the long run.
Anyway, getting back to why 50,000 is so magical…
My kids love the book, “If you give a Mouse a Cookie…” well let’s play a game of a similar ilk – if you give your real estate syndication investment $50,000 per year…. What would happen?
Let’s stretch this out over 10 years, which is a bit more than a long view for a mouse, really isn’t all that long in an average human lifespan.
My husband and partner Henry Che. - Photo by our daughter Angelique.
We find a class C asset, which is a 200-unit value-add multifamily property in Dallas, Texas. Shortly after, you start seeing checks in the mail in the ballpark of $350 per month (pretty nice considering you don’t need to personally deal with the headaches of managing a rental property. Plus syndicates are diverse – they can be multifamily value-add, apartment, and commercial real estate syndicate holdings). This yields about 8% per year, not too terrible but not knock-your-socks-off amazing either.
But we’re only 365 days in. Let’s see what happens in Year 2.
You receive a Schedule K-1, a tax document that shows your income and losses for your investment in Real Estate Syndication A. - Photo by Canva
You receive a Schedule K-1, a tax document that shows your income and losses for your investment in Real Estate Syndication A. Hats off to cost segregation and accelerated depreciation, because we’re seeing a paper loss.
Yep, even though you’ve been getting $350 per month over the course of the last year.
This paper loss allows you to lower your taxable income, saving you money.
That’s great! Particularly because those savings come in handy as you’re trying to get your next $50,000 saved and ready to invest into Real Estate Syndication B.
Shortly after investing in Real Estate Syndication B, you receive an extra check in the mail each month – this one is also for $350. Now you’re raking in $700 each month for the two real estate syndications you’re investing in.
You get two K-1s in the mail in the New Year. This is to be expected, because you now have two real estate syndications. More write-offs are in store for you. You’ve been saving too, and are ready to invest $50,000 into Real Estate Syndication C.
A third check. Like the others, this one yields $350. The three checks combined bring home $1050 per month.
You’re starting to get used to your return on investment right about now…
Congrats! You drink champagne in the New Year and pat yourself on the back. To date you’ve invested $150,000 in real estate syndications and are bringing in over $1,000 per month.
And then there’s good news.
The sponsors of Real Estate Syndication A tell you per the terms that it’s time to sell the property. Because the property is located in an up-and-coming market, it has a lot of interest and sells right away. Plus, in the last four years the property has not only built up equity but has gained quite a bit of appreciation thanks to the recent renovations.
You’re check for $25,000 is in the mail.
Yep, when the property sells, you get a cut of the profits.
You receive your original $50,000 from Real Estate Syndication A back, plus an additional $25,000 in profits.Let’s do a quick recap of earnings thus far: $75,000 plus average payouts of $350 per month over the last four years is $16,800.
You 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. Again, in this example the $75,000 includes your initial investment and the appreciation after the sale.
A quick head count tells us that we have $225,000 invested, across three syndications. This yields over $1500 per month.
You and your family enjoy the passive income streams. - Photo by Canva
Starting the fifth year of our thought experiment, we learn that Real Estate Syndication B has completed its renovations and is sold.
You open your mailbox with anticipation. You receive your original $50,000, plus an additional $25,000 in profits.
You add this to the $50,000 you set aside this year and invest in Real Estate Syndication E.
You now have $300,000 invested in real estate syndications and bring home over $2,000 per month.
Might I remind you this is passive income, baby!
Is this starting to sound familiar?
In year 6, Real Estate Syndication C is sold. You take the $25,000 check and combine it with your saved $50,000 to reinvest in Real Estate syndication F.
Ditto year six, only this year Real Estate Syndication D is sold and you purchase Real Estate Syndication G.
At this point, you have nearly $500,000 invested. Each month, your passive cash flow is well over $3,000 per month.
Best of all, thanks to depreciation you have a lot of paper losses to reduce your taxable income.
Years 8 - 10
The story continues in years 8, 9, and 10. In our final three years culminating in year ten, you reflect on the money you currently have invested in real estate syndications (which now totals nearly $900,000).
You’ve continued to invest $50,000 each year for the last 10 years. Sure, it required frugality and sacrifice on your part, but you’re now earning $80,000 per year in passive real estate investing. That’s more than the average US median household income.
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Real estate syndication is a fabulous way to build wealth over the long term. - Photo by Canva
You don’t need to be an accredited investor to take advantage of all the perks of real estate syndication. As the price-of-entry is generally $50,000, most people can save this amount with careful planning and economizing. Real estate syndication is a fabulous way to build wealth over the long term. Particularly if you plan to invest that magic number - $50,000 – each year and reinvest the earnings into new syndicate holdings.
Although you may not see these same numbers in real life as our thought example, I hope this gives a good idea of what a bit of patience and planning, combined with compounding returns, can yield over the course of 10 years.
Delphine Nguyen, Investor
Delphine Nguyen is a real estate investor and a licensed real estate broker in Illinois. She learned to be successful from a variety teachers, including her own mistakes. Real estate investing is her passion. Helping others to achieve their goals is another passion that she has. She does what she knows best, therefore, her focus is solely on multifamily and co-living investment types.
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