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Real Estate Syndications, Diversification and Building Long Term Wealth · The Academy Presents podcast

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  Did you know that 90 % of the world's millionaires
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  invest in real estate? Well, I'm Angel with the
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  Academy Presents Real Estate Investing Rocks,
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  and I'm here to help you if you want to go for
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  your piece of that pie. Are you new? Are you
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  new to this and you just don't know where to
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  start? It's okay. Are you someone that has invested,
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  but you feel stuck, you feel like you've lost
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  momentum, you don't know where to really head
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  from here? Are you a seasoned real estate investor
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  who is doing great but maybe you just want to
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  hone a few skills here and there? This is the
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  place for you. The Academy Presents Real Estate
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  Investing Rocks podcast will connect you with
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  industry experts so that you can save time, avoid
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  costly mistakes, and begin living the life you've
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  dreamed of all through real estate investing.
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  You're already taking the first step. just by
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  joining us here today. Alternatives. Now, the
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  next question that might be interesting for you,
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  it's interesting for me, is how are my alternatives
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  divided? I have this information. From the alternative
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  slides, I am currently mainly in real estate
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  syndications, so 72 percent. I have some real
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  estate rentals that are left over from before.
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  I started doubling a little bit in oil last year
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  after I moved to Texas and I learned about the
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  benefits that are for investing in oil specifically
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  in the W -2 situation. I encourage you to go
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  and do some more research around it. I invested
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  some in oil. I have some crypto like, I don't
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  know, everyone, but you can see it's only 2 %
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  of my alternatives. And I have one angel investment,
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  which is also just 2 % of my portfolio. Now,
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  let me tell you a little bit about why real estate
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  for me. I'm not saying this is for you, but it's
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  something that I really liked for me. First,
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  I said I tried the stock market thing. I was
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  not successful in choosing stocks. So for me,
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  especially after I started investing in real
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  estate, seeing some of the returns, I mean, seeing
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  is believing, right? I was definitely nervous
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  in the beginning, but after I started seeing
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  some of the returns, I really... made some calculations
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  like, oh my God, this is much better than the
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  stock market. And for me, it was something I
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  was passionate about, something I was interested
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  in. So it was the process of selecting the investments
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  was very interesting. And it spoke to me. But
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  then, I kind of started getting distributions
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  and I realized that all of my cash flow that
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  I was getting from distributions was tax free.
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  And this is mainly because you do get depreciation
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  from your investments. And most of the time,
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  that depreciation offsets all of your cash flow
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  in the first two years. So if you can postpone
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  paying taxes, why not? I mean, the dollar today
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  is worth more than the dollar tomorrow, right?
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  So that was the second part. The third part.
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  was the tax advantage return on sale. And this
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  is where the real estate is treated better from
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  tax perspective. You're talking about long -term
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  capital gains, not standard income tax bracket.
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  But the other really, really amazing thing about
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  syndications is that when you sell, if you have
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  continued investing, depreciation from other
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  investments can actually be used to kind of defer
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  your profits from the investment that's all.
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  Now, as always, consult your CPA, talk with your
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  CPA. Hopefully, you have a CPA that actually
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  is familiar with real estate and alternative
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  investments because otherwise, they probably
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  will give you wrong information. But that was
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  an amazing thing to see. Then when I learned,
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  that syndications are truly, truly passive is
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  when I was really completely sold. I was sold
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  from before that, but seeing things in action
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  helped a lot. Now, I guess the fifth item right
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  now on real estate syndication is the ability
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  to very easily diversify. You have multiple ways
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  to diversify. You can diversify by sponsor or
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  project, by location, by asset type, and that
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  gives you a lot more freedom. If we take an example
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  of $100 ,000 invested and that you want to go
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  and buy a house or two, you put that money into
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  basically one type of asset in a single location
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  in quite likely in one single place. versus taking
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  that 100 ,000, splitting it into 50 ,000 chunks
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  and investing in like, I don't know, Texas or
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  South Carolina or Florida, I don't know, wherever
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  you see investments or splitting it between a
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  multifamily and storage or industrial or splitting
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  it between two different sponsors, mainly so
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  you can kind of hedge your bets on the sponsor
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  or also kind of ensure that you're not only giving
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  money to one person. It's really great for diversification.
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  From that perspective, now let's take a look
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  at what my diversification currently is. My real
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  estate syndications are currently split in those
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  six asset types. Most of it is in multifamily,
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  60 percent, then I have 19 industrial, 6 and
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  6 retail and RV, 4 and 4 medical and hospitality.
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  I would like to have more storage. I used to
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  have storage, but that went full cycle. So now
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  I no longer have storage. And frankly, for me,
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  I feel that right now my multifamily allocation
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  is probably a little high. And I would want to
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  bring it a little bit lower in the future as
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  I continue my diversification efforts. I am currently
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  in 16 projects that are currently active for
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  real estate syndications with seven different
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  sponsors. So you can see I'm diversifying through
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  all things, asset types, sponsors, locations.
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  This is all great in theory, right? And you have
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  cord, you're getting from your sponsors, hey,
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  this is what we will deliver. So let me tell
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  you what I have gotten for the seven deals that
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  I have had gone full cycle. And full cycle means
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  they have sold and I have gotten my money back
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  and hopefully you're getting your money back
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  and more profits. So in my seven full cycle deals
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  overall, I have managed to get a 1 .95, so almost
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  twice multiple. And that was over an average
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  of 2 .8 years. Now it's an average, I don't necessarily
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  like averages, but kind of gives you a good view,
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  but it's a maximum of four years and a minimum
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  of 1 .2 years. And I don't want you to think
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  that this is what you're going to need to see,
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  because first of all, I feel very fortunate to
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  have started investing when deals were great.
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  A lot of property sold when it was great to sell
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  before the interest rate started going really
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  high. So it was really, really good timing. So
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  when I think about investing in the future, I
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  do not take this as my, what should I expect?
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  I think of what I should expect is roughly 2X
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  in five years. And that I feel is what you will
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  see in majority of the deals, especially if they're
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  valued deals. Now, How does that translate to
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  other metrics? That translates to 28 % overall
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  IRR. So this is all of deals with all of ins
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  and outs, total 28 % IRR, 24 % AAR. But this
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  is also where I decided to put my maximum and
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  minimum. So you can see it's like it's not always
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  roses, right? My maximum was 48 % AAR, which
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  was. amazing and phenomenal, and it was an outlier.
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  But my minimum was 1 % and on that yield, I am
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  just happy they didn't lose any money. And I
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  count myself lucky that they didn't lose any
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  money. So just be conscious of that. Finally,
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  my year one cash flow once the asset was stabilized.
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  So for value add, that would be usually about
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  six. to nine months after the property was acquired
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  was five percent more as a guideline. Just so
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  you can see what I experienced. OK, so great.
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  This is what my results were. But what about
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  you? What if you are trying to calculate? What
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  does this mean for you when you are investing?
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  So as part of something I'm working on as my
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  passion project on wealth, Cindy, I created this
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  calculator. which is really trying to showcase
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  what it's like to invest in syndications over
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  a longer time frame. So to demonstrate that,
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  you can go and play with it. But I have done
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  something more conservative, annual distributions
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  of 5%, standard five years, length of project,
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  2x multiple. And you might be familiar by now,
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  but the difference between syndications and the
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  market is that with the market, you can kind
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  of roll your money a little bit at a time and
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  invest, which helps a lot in the compounding.
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  But with real estate syndications, you usually
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  have minimums of investment. So I put 25 ,000
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  as a minimum. So this calculation assumes that
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  you have to get distributions enough to have
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  25 ,000 to reinvest and to be also optimistic.
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  If you're still working, I edit. the edit, hey,
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  add another $10 ,000 a year. Okay, let's look
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  at results. Drum roll. Okay, so initially when
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  I created it and when I created those calculations
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  for me, I was honestly, I was like, oh my God,
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  that can't be true. But it's true. So if you
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  have invested $100 ,000 and you add $10 ,000
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  a year, that's it. Re -invest your distributions
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  because right now you're in the... well -building
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  stage, you're not yet in a stage where you are
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  taking money out. In 15 years, you would have
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  almost $950 ,000 invested. You would have $275
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  ,000 coming at the end of that quarter as proceeds
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  of sale, because honestly, you get most of your
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  proceeds on sale. You get 60 % to 70 % of your
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  return. on the sale, not through your distribution.
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  Distributions are great if you want to live off,
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  but most of the returns are at the end. At that
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  point, you would have about 47, almost 48 ,000
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  of annualized distributions that will be delivered
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  to you. Again, remember, those are tax -free
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  because you would have depreciation. And in this
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  whole time, In those 15 years, you will have
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  only contributed $240 ,000. So that's your initial
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  $100 ,000 plus $10 ,000 each year. It's amazing.
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  I put in the IRR and AARs just so you can see
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  that those are the typical IRRs and AARs that
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  you will see in the deals that are offered to
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  you. In the meantime, if you get invested in
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  the S &P 500, it will be only about $825 ,000.
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  That's with the average return of S &P 500 of
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  11%, which was the average in the last 30 years.
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  So amazing, right? It's like crazy. That is insane.
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  Yeah. So I encourage you to go and play with
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  it. And in a moment, we'll take a look at another
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  example. But first, for me, how this thinking
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  changed, I think is how it can change for you.
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  So for me, my fire path or my financial independence
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  but really changed because I can look at a higher
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  draw without reducing my principal. So this is
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  like, I get distribution, like the S &P 500 dividend
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  is 1 .6 percent, I believe on average. So I can
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  actually have a higher distribution in the meantime,
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  and frankly, less volatility. I mean, yeah, we're
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  going to talk about risks in a moment, but volatility
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  in the market is crazy. If the market falls by
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  30%, the market needs to rise by 43 % in order
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  to get to the same level that was before it started
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  falling to 30 % of 30%. So even though people
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  say, oh, it fell 30%, it doesn't mean that they
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  need to just raise 30%. You need to raise 43
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  % in order to get on the same level before. With
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  real estate, usually you do not have such a volatility,
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  especially when you're talking about commercial
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  real estate, where the evaluation is based on
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  NOI.