Thanksgiving Day officially kicks off the holiday season. For many of us, the next few weeks will be filled with various holiday celebrations with family, friends and work colleagues. In the midst of all this reverie, it’s important to take care of your mental and physical health so you can start the new year with clarity and energy.
So how do we navigate this season of celebration?
The best strategy is one word – moderation.
It’s great to celebrate this time with family and friends and if you are mindful of your health, you can stay fit during the holidays while still having a good time.
Here are five tips on how to stay healthy during the holidays while still participating in the fun and merriment.
Eat Wisely– The holidays are filled with rich, delicious foods and sweet treats but too much indulgence can wreak havoc on your blood sugar, not to mention your waistline! Try eating a small meal prior to a holiday party so you don’t arrive on an empty stomach. When at the party itself, it’s okay to enjoy a few rich treats but try to fill your plate with healthier foods like fruits and vegetables and eat slowly! It can take your brain up to 20 minutes to realize that you are full.
Don’t Skimp on Sleep – Going out more and staying out later can cut into sleep time. Research has shown that a good night’s sleep is linked to a myriad of health benefits including increased productivity, stress reduction, and clearer thinking. Getting the proper amount of sleep also lowers your risk for health issues like diabetes, heart disease and depression so aim for a minimum of 7 hours or more each night.
Stay hydrated – Drink plenty of water, especially alongside alcohol. Alternating a glass of water with an alcoholic drink is a good way to prevent overindulgence. Staying hydrated is essential to good health. Water delivers important nutrients to our cells, especially muscle cells, postponing muscle fatigue. It also helps with weight loss, aids in digestion, hydrates our skin and flushes out toxins.
Stay Active – Finding time to exercise can be challenging during the holidays so squeeze in fitness wherever you can. Small choices like taking the stairs, walking around the block, or parking farther away from your destination can all help. If you can’t make it to the gym, a short workout is better than no workout. Try a 10 minute burst of high intensive exercise like jumping jacks or aerobic exercise to get your heart pumping and your body moving. Finding time for fitness will also decrease anxiety and improve your mood.
Quiet your mind – Holidays can be stressful and it’s easy to get caught up in all the hustle and bustle of shopping, parties, family gatherings, gift giving, house cleaning, etc. Make sure to set aside a small amount of time each day to quiet your mind – this can be done via meditation, prayer or even just listening to soothing music with your eyes closed. Taking the time to slow down and just relax will help you calm your mind, manage your stress and improve your mood.
Most of all, remember what the season is about—celebrating and connecting with the people you care about. Taking care of yourself and your health will allow you to be your best self for your family and friends and will enable you to truly enjoy this special time of year.
Let’s face it. It’s been a rough year for the economy.
Interest rates continue to rise and inflation is rampant.
Investors are growing weary of the stock market’s volatility and turning to commercial real estate. Multifamily and self storage have performed well over the last few years but as cap rates compress, many investors are looking at alternative asset classes such as short term rentals.
Now, when most people think of Short Term Rentals, they think of Airbnb or VRBO (Vacation Rentals by Owner). The majority of these properties are single assets with mom and pop operators. But the demand for these properties is growing and the stability and passive income from STRs present an excellent opportunity for investors.
But before we dig into why we like this asset class, let’s talk a bit about why Airbnbs are so popular.
Back when my kids were younger, travel was a challenge. We’d all share a single hotel room and when it was bedtime for the kids, it was bedtime for everyone! Often, that meant lights out by 8pm. No one had their own space and while it was fun to get out and see the world, I often needed a vacation from my vacation!
Short term rentals solve many of those problems by providing plenty of space plus the types of furnishings and features that travelers are used to enjoying at home. And many STRs are offering much more than just accommodations; they are redefining travel with many properties incorporating design and amenities to create a unique “experience” for guests.
Here are five reasons why you should consider investing in Short Term Rentals:
Growth — Short Term Rentals is a growing asset class. The number of customers using STRs has increased 12x over the last seven years and there has been a 300% STR growth in the last five years
High Yield — STRs are money makers! One STR can earn up to 4x the cash flow of a traditional long term rental (LTR).
Recession resistant – STRs are evaluated based on revenue so their resale value is higher than traditional LTRs and rising interest rates have less of an impact on cash flow than other asset classes
Demand Driven Pricing – In the STR space, the ability to price nights is directly tied to demand, so prices can easily be adjusted up or down as needed to ensure no potential revenue is left on the table
Increase in Remote Work – The percentage of people working out of the office is continuing to rise, providing complete flexibility regarding the location of remote work. With the prevalence of strong WiFi, people can opt to spend a month working at the beach or in the mountains and in those cases, they are more likely to stay in a short term rental as opposed to being confined in a single hotel room.
Less Competition – Once an asset class becomes flooded with institutional money, values tend to rise and cap rates compress. But since STRs are still in growth mode and there are less portfolios of properties, the institutional investors are sticking with traditional multifamily and haven’t jumped in yet. This leaves the field wide open for smaller investors.
Operational efficiency – Using the same property management company for an entire portfolio of STRs saves on operational expenses. In addition, the use of automation in both booking and customer access to the properties (via keypads) keeps costs down as well.
Additional depreciation – Unlike traditional multifamily, depreciation may be applied to the property as well as it’s contents – including furniture, textiles, dishes, etc
Multiple Exit Strategies – Having multiple assets in a single portfolio provides a great deal of flexibility for divestiture as well. Properties may be held indefinitely for cash flow; individual properties may be sold off as turnkey STRs to one-off investors; or the entire portfolio may be sold to an institutional investor looking to get into the STR space.
Of course, there are factors to consider with regards to the location of the properties as well such as seasonality, driving distance to major metropolitan areas, close proximity to tourist attractions and purchasing property in municipalities that are friendly to STRs.
Short Term Rentals are an asset class that continues to grow so don’t sleep through this opportunity to get in early and grow your portfolio!
If you’ve ever experienced owning single-family or multifamily homes, you know that these investments require time and energy.
Investing in residential real estate can be challenging because, typically, you as the investor wear many hats throughout the seemingly never-ending process. Responsibilities include finding the property, negotiating and funding the deal, renovating the property, interviewing tenants, and even performing maintenance.
The trouble is, it doesn’t stop there. You have to repeat most of the process over again when your tenant’s lease is up.
Actively Investing in Small Multifamily Rentals Can Be a Lot of Work
Small multifamily rentals have some advantages over single-family homes. For example, if one tenant moves out, the tenants in the other units are still there to help cover the mortgage. Plus, it’s much easier to manage one property with multiple tenants than to manage multiple properties with one tenant each.
But, even with a property manager on board to help with your rentals, bookkeeping, strategic decisions, and maintenance/repair costs are still your responsibility. You’re basically running a small business, which can be challenging if you’re working a full-time job.
The Case for Passive Real Estate Investments
On the flip side, there are fully passive investments in commercial real estate. These are professionally managed and operated investments so you don’t have to deal with any of the three T’s – Tenants, Toilets, and Termites.
Once investors begin to understand passive commercial real estate investments, it’s common for them to move toward syndications. Here are 5 key reasons why investing passively in real estate could work for you:
1. Minimal Time Required
Have you heard the phrase “set it and forget it”? In a syndication deal, you put money in, collect cash flow during the hold period, and receive profits upon the sale of the property.
You won’t be fixing toilets, screening tenants, or handling maintenance. The sponsor team and the property management team expertly attend to those things so you can sit back, enjoy the returns, and focus on living life.
2. Opportunity for Diversification
It would be unreasonable for anyone to attempt to become an expert in every phase of the property investment process, and even more so when it comes to different markets.
By investing with experienced deal sponsors, you can easily diversify into various markets and asset classes while resting assured that the professionals are taking care of business. This allows you to quickly and easily scale your portfolio while also mitigating risk.
3. Tax Benefits
Similar to personally owned rentals, you get pass-through tax benefits when investing in real estate syndications. You’ll be able to write off most of the quarterly payouts, which means you basically get tax-free passive income throughout the holding period.
You will, however, likely owe taxes on the appreciation income you earn upon the sale of the property. Always check with your own CPA on your personal situation.
4. Limited Liability
When you invest passively through real estate syndications, your liability is limited to the amount of your investment. If you were to invest $50,000, your biggest risk would be losing that $50,000. You wouldn’t be on the hook for the entire value of the property, or the loan to buy the property, and none of your other assets would be at risk.
5. Positive Impact
With small multifamily homes, you make a difference in two to four families’ lives. But with real estate syndications, you have the chance to change the lives of hundreds of families and whole communities with just one deal.
Each syndication creates a cleaner, safer, and nicer place for people to live and impacts the community and the environment positively. And that’s something you won’t get from stocks and mutual funds.
If you’re on the fence between active and passive real estate investments, the experience you gain from owning small rentals is irreplaceable. But personally owning rental properties is not a prerequisite to commercial real estate syndications.
Either way, investing in real estate is a great way to diversify your portfolio and mitigate risk. It gives you an opportunity to have a positive impact on the families who will live in your units, as well as a positive impact on the environment and community.
It’s no secret that you got into real estate investing because you saw it as a way to get ahead. Real estate syndications provide Wall Street-independent diversification opportunities, an income opportunity beyond trading your time for money, and, of course, passive income and appreciation in exchange for your well-invested capital.
However, if you’re a high-income earning family, it’s possible that real estate is more than just another investment, but that it’s a way to reduce your tax liability significantly. Sure, you can max out your retirement accounts, donate thousands to charity, and be creative about write-offs. Still, as your income increases, tax deductions phase-out, leaving you with an ever-increasing tax bill and a lot of frustration.
Whether you or your spouse is a physician, attorney, engineer, tech professional, or other high-income earning professional, you may have noticed that as promotions and bonuses are achieved, your taxes keep increasing too!
One reason could be that large companies directly employ these high-profile positions instead of them being independent, self-employed individuals with their own practices. Hospital management firms employ physicians; Google, Facebook, and Apple employ engineers and tech professionals, and nearly every large company has in-house attorneys. The difference in being a W-2 employee vs being self-employed with your own practice means reducing deductions available to you.
Enter REPS – real estate professional status.
In this article, you’ll discover what REPS is, how it may help you drastically reduce your tax liability, and why, in this case, it’s beneficial to have one spouse manage the family’s real estate investments full-time while the other leans into their high-income earning career. So if you or your spouse is a high-income earner, and you’ve been looking for a way to impact your tax liabilities even though deductions are phasing out, you’re in the right place!
About Real Estate Professional Status
Anyone can claim real estate professional status (REPS) as long as:
More than half the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.
You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated.
This is, of course, lined out in detail in IRS Publication 925, but basically, real estate has to be your primary job. You wouldn’t have much time in a year beyond the 750 hours required for anything besides maybe a part-time job. You don’t need any degree, certification, or license to designate yourself as REPS, and, for a married couple, only one spouse needs to qualify.
REPS allows couples to divide and conquer – one high-income earning spouse gets to lean into their profession while the other claims the REPS designation and assumes responsibility for managing all real estate investments’ day-to-day activities, qualifying the couple for significant tax benefits.
Tax Advantages Of REPS, Plus An Example
Cost segregation studies, accelerated depreciation, and other fancy real estate occurrences often produce on-paper losses for investors, which result in reduced tax liability. Cool, right?
Well, suppose you’re a married couple filing jointly, and you make over $150,000. In that case, you can’t use passive real estate losses to reduce your taxable income because there are no “special allowances” according to the IRS for these high-income families. Those suspended passive losses carry forward until you have a year of passive gains from your real estate investments since passive losses can never offset active income like that from a W2.
That is unless one of the spouses in this theoretical $150K + earning family designates themselves as a real estate professional and meets the qualifications above.
As an example, let’s look at Samantha and her family. Her husband is an executive of a well-known entertainment company, and she manages the household, raises their two-year-old, and oversees the couple’s investment strategy. Her husband, Barrett, makes $250,000/year plus bonuses while Samantha manages the day-to-day activities of their real estate investments, which has quickly turned into her full-time job.
Even though her properties are cash flow positive, Samantha generated $150,000 in losses from her real estate business. Here’s where it gets interesting…
Suppose Samantha has designated herself as qualifying for real estate professional status as a couple. In that case, they can deduct all $150,000 in (passive) losses from Barrett’s $250,000 (active) income, leaving only $100,000 reflected as taxable income and dropping them into a lower tax bracket.
However, if Samantha does not qualify or doesn’t designate as a REPS, the couple is taxed on all $250,000 of income, approximately doubling the value owed to their taxes.
Without a REPS designation, Samantha’s $150,000 in passive losses must be carried forward until she has passive gains against which she can apply them. Meanwhile, the couple is taxed on Barrett’s total income, likely for several years.
Why pay more than you have to? Especially considering that any tax savings can be flipped into your next investment opportunity, potentially moving you toward your financial and investing goals faster.
How To Achieve REPS
Now that you can see the benefit of one spouse being the designated real estate professional in the family, you need a plan to put this into action.
First, you’ll need to decide which spouse will become the real estate professional. For some families, this is easy because one spouse is already the primary breadwinner and the other is a homemaker.
For other families where both spouses are working, the choice may be a little more challenging. Beyond each spouse’s current income, consider things like career trajectory, passion for career, passion for real estate, other assumed roles as the real estate professional (child care/homemaker?), and each spouse’s ability to handle organizational and management activities.
No matter which spouse chooses to become the real estate professional, they need to be serious about treating real estate investment management activities as a business.
In addition, we suggest discussing this with your CPA so that you can coordinate timing, real estate purchases, designations, and more. From there, set aside funds to invest, start shopping for your first several investment properties, and track your real estate business activities closely.
Use separate bank accounts, an accounting program, a separate email address, and other business-like systems with your real estate investments to further separate and clarify investment management activities from any personal activities.
Making REPS Benefit Your Family
Successfully operating real estate investments and achieving REPS status may look different for every family, so let’s look at a couple of scenarios for clarity:
Scenario 1: Two working spouses, one working full time and leaning into their high-income earning profession, and the other working part-time while materially participating (actively involved) in managing the couple’s real estate investments.
Scenario 2: One working spouse and one homemaker who decides to make managing real estate investments their primary job.
In both scenarios, the spouse managing real estate needs to commit to (and be able to prove) their material participation in the day-to-day decisions regarding their real estate properties, accumulating 750 hours or more of tracked time and activities over the taxable year.
For most, it would be challenging to spend 750 hours on just a few properties. So if you accumulate several properties quickly, track your time and business activities managing them, and treat your investment properties as a business, you’re more likely to achieve all the qualifications for REPS.
Treating investments like a business means having formalities and systems in place, deciding when to raise rents, renew leases, buy, sell, renovate, and more. If you’re constantly approaching your day intending to maximize profit while simultaneously improving your tenants’ experience, tracking your time and activities (a Google Calendar is an excellent tool for this!), and coordinating with contractors toward successful renovations, you’re on your way!
Usually, the 750-hour requirement is per real estate property, but you can combine all of your real estate management activities from several properties into one by including the following language in your tax returns:
Under IRC Regulation 1.469-9(g)(3), the taxpayer hereby states that they are a qualifying real estate professional under Code Sec. 469(c)(7), and elect under Code Sec. 469(c)(7)(A) to treat all interests in rental real estate as a single rental real estate activity.
That phrase “taxpayer hereby states that they are a qualifying real estate professional” is critical.
Each family will need to work out their own beliefs and opinions about which spouse should work and about the division of labor and responsibilities between the two spouses. Still, if one spouse can hit these requirements, coordinate with tax professionals, and find joy in managing real estate investment assets for the family, REPS can be a huge advantage!
Is Real Estate Professional Status For You Or Your Spouse?
If you’re part of a married-filing-jointly relationship and have an income over $150,000, you may have been feeling increasingly frustrated by your high tax liability. You’ve likely looked into real estate searching for tax benefits, and maybe you are already invested in a few properties.
However, if you want to apply your on-paper losses to your household’s active income, achieving real estate professional status may be the answer. Otherwise, you may be stuck carrying passive losses for years to come.
As always, we’re not here to give you tax or life advice. Instead, take this article and the things you’ve learned here as inspiration for more research, an open discussion with your spouse, and food for thought as you further examine the most efficient way to move toward your lifestyle and investment goals.
Most of us are fairly familiar with the process of buying a home.
Once you’ve decided to make this (literal) move, you think about the neighborhoods and the type of home you’d like to purchase. You might make a list clarifying your must-haves vs your nice-to-haves. You’ll consult with a lender to discuss your loan options and how much money they’re willing to lend you, and as a result of that meeting, you might make some changes in your must-have or nice-to-have items you get your lender’s pre-approval letter. Then, you’ll tour properties until you find the home of your dreams, submit an offer that fits into your budget but is also agreeable to the seller and live happily ever after!
By extension, the traditional types of real estate investing that involve buying a house and making some sort of profit on it, are also fairly easy to grasp.
Fix-and-flip: buy a house, renovate it, sell it for a profit.
Buy and hold: buy a house, rent it out, get monthly rent checks.
Beyond that, it gets a bit more complex, especially when you start talking about things like group investments (aka, syndications), in which you invest passively alongside several, sometimes hundreds of, other investors to purchase a large asset, like an apartment building.
In this post, I’d like to take you through that process from start to finish, so you have a clear understanding of all the steps involved in investing passively in your first real estate syndication.
While the timeline can vary with different deals, the overall steps of investing in a real estate syndication are largely the same:
1. Decide whether to invest in real estate, period
2. Determine your investing goals
3. Find an investment opportunity that fits
4. Reserve your spot in the deal
5. Review the PPM (private placement memorandum)
6. Send in your funds
7. Relax and enjoy your passive income
I tend to think of this process as a funnel, each step of which helps you gain a little more clarity on what you want and helps you get a little closer to your goals of finding and investing in a specific deal.
Step #1 – Decide Whether to Invest in Real Estate, Period
This is perhaps the most important step of all, the decision of whether you want to invest in real estate, period. After all, there are many other things you could invest in, from gold to coffee plantations to stocks to crypto.
This is a decision that is personal to each investor. You’ll need to look at your overall portfolio, reflect on your goals, and determine whether investing in real estate can help you reach those goals.
I can’t make those decisions for you. What I can tell you, is how I got into real estate investing.
For me, it was all a matter of timing. I had taken the traditional route – gone to college, landed that great corporate job and worked my way up to a VP title and the corner office. I was making great money, but I had zero work life balance. I was barely seeing my family; I had no time for exercise and I just felt exhausted all the time.
Then, a trusted colleague told me about syndication.
I didn’t jump in at first; in fact, it was close to two years until I made my first investment. But I spent that time watching and learning and acquiring as much knowledge as I could. And when I finally did invest in my first syndication, I saw firsthand the power of passive income. Since then, I have invested passively in over 2,100 doors as an LP and I continue to invest today.
Real estate taught me about people and relationships, leverage, tax benefits, and passive income. And I’ve seen firsthand that it’s a powerful strategy for building wealth and creating a lasting legacy.
Once you decide that you want to invest in real estate, think about what you’re hoping to get out of it. Are you looking for a long-term or short-term investment? Are you hoping for a lump sum fairly quickly, or a steady stream of passive income over time? How much do you have to invest, both in terms of money and in terms of time?
If you’re not afraid to roll up your sleeves and put in some sweat equity, or you want to choose your own tenants or cabinets or flooring, you might consider trying a fix-and-flip, or buying and holding a small rental property.
If, on the other hand, you want more of a set-it-and-forget-it type of investment, a real estate syndication might be a better fit. You can invest your money alongside other investors, then have an asset manager take the helm, manage the asset, and carry out the business plan to update the units and maximize impact and returns.
Step #3 – Find an Investment Opportunity That Fits
If, at this point, you’ve decided that a real estate syndication is the best fit for you, the next step is to find a syndication opportunity that works for you. Just as there are a variety of different real estate assets you can invest in personally, there are a variety of real estate syndication projects available as well, from ground-up construction to value-add assets, and even turnkey syndications.
To help investors learn about investment opportunities, deal sponsors typically provide some variation on the following materials:
Full investment summary
These are the core materials that will give you a full 360-degree view of the asset, market, deal sponsor team, business plan, and the projected financials.
Personally, when I review these materials, I’m looking first and foremost at the team who’s running the project. I want to make sure they have a solid track record and that they’re good people. As you know, you can give a great project to a terrible team, and they’ll drive it into the ground. On the flip side, you can give a struggling project into a terrific team, and they’ll turn the whole thing around.
Beyond the team, I look to see if the business plan makes sense, given the asset class, submarket, and where we are in the economic cycle. I do my own research on the market, looking at job growth, population growth, and other trends. I look at the minimum investment amount, projected hold time, and projected returns. I look to make sure that the team has multiple exit strategies in place, in case their Plan A doesn’t pan out. I look for conservative underwriting. I attend or review the investor webinar and ask tough questions.
I essentially look for any reason NOT to invest in the deal.
If, after all my research and analysis pans out, I consider investing in the deal.
But again, this is my personal philosophy and methodology. As you review different investment summaries, you’ll come up with your own criteria of what you’re looking for. The more you review, the better you’ll know exactly what you’re looking for.
Step #4 – Reserve Your Spot in the Deal
One thing to note about real estate syndications is that the opportunity to invest in the deal is on a first-come, first-served basis.
This can be especially important for deals in hot markets with strong deal sponsors.
I’ve seen multi-million-dollar investment opportunities fill up in just hours.
That’s why it’s important to do your research ahead of time, to know how much money you want to invest, and what you’re looking for in an investment opportunity.
That way, when the opportunity opens up, you can jump on it.
Often, there will be an opportunity to put in a soft reserve amount. This is to hold a spot for you in the deal while you take some time to review the investment materials. If you decide to back out or reduce your investment amount later, you can do so with no penalty.
The flip side is, if you don’t hold a place, but then later decide you want to invest, there may no longer be room for you in the deal, and you’ll have to join the backup list.
Not every deal offers a soft reserve, but when there is one, and I think I might be interested, I always put in a soft reserve to buy myself some more time to think about the deal, review the materials, and do my own research.
For deals with a soft reserve, this step and the previous step #3 might be flipped or more fluid, so I tend to review the executive summary, reserve my spot in the deal, then review the rest of the materials.
Step #5 – Review the PPM
Once you’ve decided to invest in a deal, the first “official” (aka, legal) step is the signing of the PPM (private placement memorandum).
This is a legal document, often quite lengthy, that goes into detail about the investment opportunity, the risks involved, and your role as an investor in the project.
The PPM is certainly not the most fun document to review, but it’s very important that you read through it, so you fully understand all aspects of the investment opportunity, including the risks, subscription agreement, and operating agreement.
As part of signing the PPM, you’ll also need to decide how you want to hold your shares of the entity that’s holding the asset. Often, you can also specify whether you want your cashflow distributions sent via check or direct deposit.
Step #6 – Send in Your Funds
Once you’ve completed the PPM, the next step will be to send in your funds (aka, the amount you’re investing into the deal).
Typically, you will have the option to either wire in your funds or to send in a check. I’ve used both methods before and have had no issues with either method.
Pro tip: Before wiring in your funds, be sure to double check the wiring information, and let the deal sponsor know to expect your funds so they can be on the lookout.
Step #7 – Relax and Enjoy Your Passive Income
By this point in the process, you’ve done your due diligence on the investment, reserved your spot in the deal, reviewed all the legal documents, and sent in your funds.
That means you’re done with all the active parts of your role as an investor. If we’re using the syndication-as-an-airplane-ride analogy, that means you’ve picked your destination, bought your ticket, checked your bags, reviewed the safety information, buckled your seat belt, and now you’re ready for a cocktail and a movie.
The next piece of communication you’ll likely receive is a note once the property has closed.
After that, expect monthly updates on the project, more detailed quarterly reports on the financials, quarterly cash flow distributions, and an annual K-1 for your tax returns.
So, there you have it. Hopefully, the process of investing in a real estate syndication is a bit clearer now, and perhaps, a little less intimidating.
Real estate syndications are more of a set-it-and-forget-it type of investment, so most of your active participation is up front. After you decide to invest in a syndication, you review the investor materials (executive summary, full investment summary, and investor webinar), reserve your spot in the deal, review and sign the PPM, and send in your funds.
The first time you do it, it might seem a bit confusing as to what to expect and what questions to ask. However, as you review and invest in more deals, the process will become second-nature.
Investing in real estate can seem like a whole new world with new terms and new asset classes.
To help you through this process, most operators will put together investment summaries to explain to potential investors the key points of the opportunity – why they like the deal, what they plan to do with the asset, and how much the investors stand to gain from participating in the investment.
They are essentially an all-in-one business plan / underwriting explainer / photo gallery / why-you-should-invest-in-this-deal packet for every commercial real estate syndication deal.
They contain A LOT of information and no two are the same.
Some investment summaries consist of gorgeous graphics and iconography, professional photos and clear tables. Others are written like textbooks and include haphazard low resolution phone pictures someone probably threw in at the last minute. Sigh.
And while it may be hard to resist the urge to judge a book – or in this case, the investment summary – by its cover, you have to be able to swallow your initial impressions (good or bad) and look past the glossy photos and fancy charts. The best strategy is to focus on the numbers and business plan for what they really are.
If you decide to invest because the investment summary looks pretty, you may be putting yourself at risk, if you haven’t done proper due diligence on the deal and the partnership team.
Likewise, if you write off a deal because the investment summary looks like your Aunt Ida’s tax returns from last year and causes your eyes to glaze over, you might be missing out on a great opportunity.
So what exactly should you look for? Good question.
Let’s take a look at a sample investment summary. I’ll walk through my thought process when I first look through an investment summary, so you’ll know what to look for the next time one lands in your inbox.
Please note: For simplicity’s sake, I’m using a one-page executive summary for this example, rather than a full-blown investment summary, which could be dozens of pages long.
Investment Summary At A Glance
Even though every investment summary is different, there are some basic elements that are pretty common across all multifamily real estate syndication investment summaries:
Project name (often the name of the apartment complex)
Photos of the property and area
Overview of the submarket
Overview of the deal
Details of the business plan
Projected returns and exit strategies
Detailed numbers and analyses
In a one-page executive summary, you get bits and pieces of each of these elements, though you would need the full investment summary to get all the details.
If this executive summary landed in my inbox, here’s what I would do. I’d start by skimming through the whole thing.
In skimming this executive summary, here are the things that would jump out at me:
When an asset is acquired off-market, it means that the seller chose not to list the asset publicly. Maybe the seller didn’t want the tenants to know that the building was being sold (this is quite common). Maybe the seller needed to sell within a set timeline. Or maybe the seller already had a buyer in mind.
Regardless, off-market is almost always a good thing. This means the deal sponsor team did not have to compete with other potential buyers on price. Thus, there’s a good chance that the purchase price is low, or at least very reasonable.
A value-add investment is exactly what it sounds like – an asset that presents an opportunity to add value in some way. Maybe the rents are significantly below market rates because the previous owner hasn’t raised rents in 10 years. Maybe the kitchens are still from the ’90s and could use some updating. Maybe there’s an opportunity to add some brand new additional units.
Whatever the case may be, value-add means more control is in the hands of the deal sponsor team. Rather than relying solely on market appreciation, there are things they can do to create additional equity, even if the market stagnates.
One of the most common value-add scenarios is one in which the units need to be updated. Let’s say the apartments haven’t been updated in 10 years, and the rents are $1,000 per month. Even if the team were to stay the course, that $1,000 per unit would still be able to cover the mortgage and fetch a modest profit.
But, who here is looking for modest profits? Not me.
Because there’s a chance to add value and improve the living conditions, as well as the returns for the investors, this is a true value-add. The team will go in, complete the renovations, then rent out the updated units for, say, $1,200 per month.
When you add up the $200 per month increase across all 250 units, that creates a ton of additional equity in the building, not to mention a ton of value for the residents who live there. Once residents see the updated spaces, they’re often happy to pay the higher rents and start to take more pride in their community.
The next thing that catches my eye is, “Similar to Beta Apartments (acquired just last year and currently undergoing renovations)…” This tells me that this is not this team’s first time at the rodeo. They’ve done this before and are currently in the trenches with another asset nearby.
I also see, in the Investment Highlights section, that they’ve started implementing their business plan at Beta Apartments and that they’re surpassing their original projections. This tells me that their business plan is working and that they would likely be able to continue to strengthen their track record through Omega Apartments.
Further, this tells me that they’ve likely built up a strong reputation in the area, amongst brokers, property managers, and other apartment owners. Otherwise, they wouldn’t have been awarded this off-market deal.
I don’t know about you, but if I’m going to invest in an apartment building, I want it to be in a growing and developing area.
The fact that this submarket is the “#1 fastest growing” within this fictional metropolistan area tells me that things are moving and shaking here. I would likely open a new browser tab and immediately google that metro area and that particular submarket, to learn more about them.
What am I looking for? Things like proximity to major employers in the area, shopping centers, decent schools, any news about developments in the area, what it looks like on Google street view, what nearby houses are selling for, and anything else I can find.
Much of this will be in the full investment summary, but I always like to do a little research on my own as well.
Did you catch it? “Ten units have already been updated and are achieving rent premiums of $150.” Jackpot.
Why is this so important? This takes all the guesswork and assumptions out of the value-add proposal. The previous owner already created the proof of concept. They updated a set amount of units, and they were able to fetch higher rents.
This is great news. This means that all we have to do is go in and continue those renovations to achieve those same rental increases. To me, this signals much lower risk in a value-add opportunity.
There are certainly lots of numbers in any investment summary, and they can be overwhelming. Percentages, splits, projected returns…what do they all mean?
One metric I’ve come to rely on is the equity multiple. In this case, the projected equity multiple is 2.1x. This means that during the life of this project, my money will be more than doubled.
That is, if you were to invest $100,000, you would come out of this project with $210,000 by the time the property goes full cycle.
This $210,000 would include your original $100,000 investment, as well as $110,000 of profits. This $110,000 would include the quarterly cash-on-cash returns you would be getting as long as the asset is held, as well as your portion of the profits from the sale of the asset.
Everyone has a different threshhold for an equity multiple. Typically, I look for an EM of at least 1.8x or higherequity multiple around 2x, so this one passes my test.
I always like to know how many units I’m investing in. In this case, Omega Apartments consists of 250 units. This is a pretty decent size. This means that the team would be able to take advantage of economies of scale (i.e., increasing efficiencies by leveraging shared resources across the many units).
I will typically look at anything above 50 units. Ideally, to maximize economies of scale, I like to see over 100 units so this one passes the test, too.
Now that I’ve taken my initial look through the executive summary, my immediate next step would be to decide whether or not to request the full investment summary.
In this case, I would go ahead and request the full investment summary, as this opportunity ticks off most, if not all, of the things I look for in a multifamily investment opportunity – strong team, strong submarket, and opportunity to add value.
In the meantime, I would do some more research on both the submarket and the deal sponsor team. I would definitely google Alpha Investments and read about the core people on their team, learn about other assets in their portfolio, and see if I can find any negative reviews or stories out there about the individuals or the team.
Once you find an investment summary that meets your investment criteria, it’s critical that you move quickly. Why? Because these opportunities fill up on a first-come, first-served basis.
Chances are, if this investment opportunity met your criteria, it likely met others’ criteria as well. Be ready to make a soft commitment to reserve your spot, then take time to review the investment summary in detail.
Pro tip: There’s no penalty for backing out of a soft reserve n investment down the road, so it’s to your benefit to reserve early, to ensure you get a spot in the deal. If you wait around to be 110% sure, others will have jumped in front of you in line, and you may be left on the backup list.
Request a Full Investment Summary Sample
If you’re interested in seeing a sample of a full investment summary, or to gain access to the deals in our pipeline, consider signing up for the Noblivest Investor Club.
We are here to support you in your investment journey and will never pressure you to invest. Our goal is to help you gain the knowledge you need to invest with confidence (whether in our deals or not), so that together, we can change the world, one investment at a time.
It’s 4th quarter and the year is winding down. Are you thinking about your 2022 tax bill yet?
If not, here’s why you should!
There are just over two months left in the year and it’s not too late to find ways to offset your taxes before the end of 2022.
Most people, when they start out investing, don’t even think about taxes and how their investment choices may affect how many money you may have to pay to Uncle Sam..
That’s because, when you invest in stocks and mutual funds, you have to pay capital gains tax on the profits earned.
But investing in real estate tends to make your tax bill lower, not higher.
Yes, you read that right. Investing in real estate can often help lower the amount of taxes you owe, even while you’re making great returns on your investment.
But how is that possible, you ask?
There’s actually a HUGE difference between the way the IRS views stock market gains and the way they view real estate gains. And that’s exactly what we’ll discuss in this article, specifically from the standpoint of a passive investor in a real estate syndication.
But First, a Disclaimer
We are not tax professionals, nor do we wish to be ones (it’s a tough job). As such, the insights and perspectives provided in this article come from our personal experience only. You should always consult your CPA or tax advisor in relation to your specific situation.
Okay, now that that’s out of the way, let’s dive in.
The 7 Things You Should Know about Taxes and Real Estate Investing
Okay, get ready to have your socks knocked off. As much as taxes can knock one’s socks off, anyway.
Here are seven main things I think every passive investor in a real estate syndication should know about taxes:
The tax code favors real estate investors.
As a passive investor, you get all the tax benefits an active investor gets.
Depreciation is a super powerful tool!
Cost segregation is depreciation on steroids.
Capital gains and depreciation recapture are things you should plan for.
1031 exchanges are amazing.
Some people invest in real estate solely for tax benefits.
#1 – The tax code favors real estate investors.
You may have heard that more people become millionaires through investing in real estate than through any other path. And believe it or not, the tax code plays a big role in that.
You see, the IRS recognizes how important real estate investing is, in providing quality housing for people to live in. As such, the tax code is written in such a way that it rewards real estate investors for investing in real estate, maintaining those units, and making upgrades over time (more on these benefits in a moment).
So as a real estate investor, you’re like the IRS’s teacher’s pet.
Hey, there are worse things.
#2 – As a passive investor, you get all the tax benefits an active investor gets.
This is a big deal! This means that, even though you’re not actively fixing any toilets or climbing on any roofs, you still get full tax benefits, whether you’re an active or passive investor.
This is because, as a passive investor in a real estate syndication, you invest in an entity (typically an LLC or LP) that owns the property, and that entity is disregarded in the eyes of the IRS (these entities are sometimes called “pass-through entities”).
That means that any tax benefits flow right through that entity, to you, the investors.
Note: This is different for investing in REITs. With a REIT, you are investing in a company, not directly in the underlying real estate, and hence you don’t get the same tax benefits.
Common tax benefits from investing in real estate include being able to write off expenses related to the property (including things like repairs, utilities, payroll, and interest), and being able to write off the value of the property over time (this is called depreciation).
Let’s focus in on this thing called depreciation.
#3 – Depreciation is a super powerful tool!
Depreciation is one of the most powerful wealth building tools in real estate. Period.
Depreciation lets you write off the value of an asset over time. This is based on wear and tear and the useful life of an asset.
What is depreciation?
To give you a simple example, let’s say you just bought a new laptop. On day one, that laptop works great. Over time, however, the keyboard gets sticky, the processor slows down, and the battery barely lasts more than a few minutes. Eventually, the whole thing will go kaput and be worth very little, if anything. This is the essence of depreciation.
Essentially, the IRS is acknowledging that, if the property is used day in and day out, and if you do nothing to improve the property, that over time, the property will succumb to natural wear and tear, and at a certain point in the future, the property will become uninhabitable (just like when that laptop eventually dies).
As you can imagine, every asset has a different lifespan. You wouldn’t expect a laptop to last more than a few years. On the flip side, you would expect a house to still be standing several years, or even decades, later.
For residential real estate, the IRS allows you to write off the value of the property over 27.5 years.
Note: Only the property itself is eligible for depreciation benefits, not the land. The IRS is smart enough to realize that the land will still be there in 27.5 years and will still be worth the same, or more.
Here’s an example
Let’s say you purchased a property for $1,000,000. Let’s say the land is worth $175,000, and the building is worth $825,000.
With the most basic form of depreciation, known as straight-line depreciation, you can write off an equal amount of that $825,000 every year for 27.5 years. That means that, each year, you can write off $30,000 due to depreciation ($30,000 x 27.5 years = $825,000).
The reason that this is such a big deal is this. Let’s say, that first year, you make $5,000 in cash-on-cash returns (i.e., cash flow) on that property. Instead of paying taxes on that $5,000, you get to keep it, tax-deferred (i.e., without having to pay taxes on it until the property is sold).
*Disclaimer: This depends on your individual tax situation. Please consult your CPA.
That $30,000 in depreciation means that, on paper, you actually lost money, while in reality, you made $5,000.
Plus, properties acquired after September 27, 2017, are eligible for bonus depreciation, which can really amp up the tax benefits for that first year.
This is why depreciation is SO powerful.
#4 – Cost segregation is depreciation on steroids.
But wait, there’s more!
In the last example, we talked about something called straight-line depreciation, which allows you write off an equal amount of the value of the asset every year for 27.5 years.
But, for most of the real estate syndications we invest in, the hold time is around just five years. So if we were to deduct an equal amount every year for 27.5 years, we’d only get five years of those benefits. We’d be leaving the remaining 22.5 years of depreciation benefits on the table.
This is where cost segregation comes in.
Cost segregation acknowledges the fact that not every asset in the property is created equal. For example, that printer in the back office has a much shorter lifespan than the roof on top of the building.
In a cost segregation study, an engineer itemizes the individual components that make up a property, including things like outlets, wiring, windows, carpeting, and fixtures.
Certain items can be depreciated on a shorter timeline – 5, 7, or 15 years – instead of over 27.5 years. This can drastically increase the depreciation benefits in those early years.
Here’s an example
Let me give you an example. And this one is based on a true story.
A few years ago, real estate syndication group purchased an apartment building in December of that year. That means that the investors only held that asset for one month of that calendar year.
However, due largely to cost segregation, the depreciation schedule was accelerated for many items that were part of the property, including things like landscaping and carpeting.
The K-1 that was sent out to investors the following spring showed that, if you had invested $100,000 in that real estate syndication, you showed a paper loss of $50,000.
That’s 50% of the original investment.
Just for owning the property for a single month during that tax year.
And, if you qualify as a real estate professional, that paper loss can apply to the rest of your taxes, including any taxes you owe based on your salary, side hustle, or other investment gains.*
*Again, this depends on your individual situation, so please consult your CPA.
This is a game-changer, folks.
#5 – Capital gains and depreciation recapture are things you should plan for.
You didn’t think that real estate investing would be 100% tax-free, did you?
Unfortunately, the IRS likes to be included in everything.
In real estate investing, the way they get their cut is through capital gains taxes when a real estate asset is sold, and sometimes, through depreciation recapture, depending on the sale price.
In a real estate syndication that holds a property for 5 years, you wouldn’t have to worry about capital gains taxes and depreciation recapture until the asset is sold in year 5.
The specific amount of capital gains and depreciation recapture depends on the length of the hold time, as well as your individual tax bracket.
Here are the brackets and percentages based on the 2021 tax rates:
For more details and the most up-to-date laws and info, I recommend you discuss the specifics with your CPA.
#6 – 1031 exchanges are amazing.
I mentioned above that when a real estate asset is sold, capital gains taxes (and often, depreciation recapture) are owed. However, there is one way around this. And that’s through a 1031 exchange.
A 1031 exchange allows you to sell one investment property, and, within a set amount of time, swap that asset for another like-kind investment property.
Doing so means that, instead of having the profits paid out directly to you, you roll them into the next investment. As such, you don’t owe any capital gains when the first property is sold.
Only some real estate syndications offer a 1031 exchange as an option. Often, the majority of the investors in a syndication have to agree to a 1031 exchange to make it a possibility.
Unfortunately, you cannot do a 1031 exchange on just your shares in the real estate syndication.
The sponsors must decide to do a 1031 exchange on the whole shebang. It’s all or nothing.
Every sponsor is different and approaches 1031 exchanges differently. If a 1031 exchange is something you’d be interested in, be sure to ask the sponsor about it directly.
#7 – Some people invest in real estate solely for the tax benefits.
The tax benefits of investing in real estate are so powerful that some people (namely, wealthier folks) do so purely for the tax benefits. You see, by investing in real estate, they can take advantage of the significant write-offs, and then apply those to the other taxes they owe, thereby decreasing their overall tax bill.
This is how real estate tycoons can make millions of dollars but owe next to nothing in taxes.
It’s perfectly legal, and it’s a powerful wealth-building strategy. And, you don’t have to be wealthy to take advantage of the tax benefits of investing in real estate. The tax code makes the benefits of investing in real estate available to every real estate investor.
Like I mentioned when I started this article, you don’t have to worry about taxes when investing in real estate, especially as a passive investor in a real estate syndication. In most cases, you’ll be able to make money via cash-on-cash returns, yet you won’t owe taxes on those returns due to benefits like depreciation.
To recap, here are the seven things I think every real estate investor should know about taxes:
The tax code favors real estate investors.
As a passive investor, you get all the tax benefits an active investor gets.
Depreciation is hecka powerful.
Cost segregation is depreciation on steroids.
Capital gains and depreciation recapture are things you should plan for.
1031 exchanges are amazing.
Some people invest in real estate solely for the tax benefits.
As a passive investor, you don’t have to “do” anything to take advantage of the tax benefits that come with investing in real estate. That’s one of the benefits of being a passive investor. You don’t have to keep any receipts or itemize repairs. You just get that sweet K-1 every year, hand that over to your accountant, and that’s it.
There’s no doubt about it. We are in a time of economic uncertainty. The Feds keep raising interest rates in an effort to curb inflation and the stock market continues to be volatile.
During these turbulent times, the wealthy focus on three main areas:
Unless you are one of the lucky few that love their job, most people spend their days working at a job that they can’t wait to leave. Escaping their W-2 is a major factor for many of our investors and by investing in real estate syndications, Noblivest can help you achieve that goal. Passive income can be created through cash flow and equity multiples which can eventually replace your W-2 income.
And when that happens, you can stop working for money and let your money work for you!
When stocks are in a bear market, it can be painful to even check your account. In the span of a single day, your stock portfolio can take a nosedive, decreasing your net worth dramatically.
At Noblivest, the number one thing we focus on when putting together or investing in a real estate syndication is making sure that, above all else, we don’t lose money. Even if we don’t hit our expected returns, we want to be sure, at the end of the day, we at LEAST get our original investment back.
So when you are investing during turbulent times, make sure to invest in stable, recession resistant investments to preserve your capital and then ideally, to grow it!
“Two things are certain in life, death and taxes.” Benjamin Franklin
Most of us know this quote from Ben Franklin but I prefer this response from an uncited source: “Death and taxes may be certain, but we don’t have to die every year!”
For many people taxes are by far their biggest expense and it’s not just income tax. There are property taxes, sales taxes, conveyance taxes, capital gains taxes, inheritance taxes… and the list goes on.
For high income earners working a W-2 job, there’s not much you can do about payroll taxes. But what you can do is focus on investing your capital to create passive income, which can trigger a variety of tax savings. For example, when investing in a real estate syndication, depreciation may be used to offset your gain, thus reducing your taxable income. And when exiting a deal, you can utilize a 1031 exchange to roll your profits directly into a new investment, thus deferring your taxes to a later date.
Interested in learning how you can weather this economic downturn and still come out ahead? Let’s discuss how we can help! Book a call
If you had one million dollars, what would you do?
Most people, when asked this question, would reply with a number of responses – they’d pay off their credit cards, buy a home or car, travel, maybe even stash some away for a rainy day.
But one of the first things you should do is, think about how you can make that $1,000,000 last.
Obviously, paying off consumer debt is a good thing and it’s understandable that you’d want to spend some of the money on travel and shopping. But by investing even a small part of that one million dollars into a cash-flowing asset, you can create passive income that will continue to grow and pay you for years.
Let’s explore 5 ways you could work to grow that million over the next 5 years and see which one is the most profitable.
#1 – Savings Account
A basic savings account is the default got-to when people think of large sums of money.
Savings accounts are generally considered safe and they usually do earn interest. However, at the time of publish, savings accounts are earning a mere 2.5% interest. If you put all one million into a savings account and let it earn interest for 5 years, you’d wind up with about $1,133,001.
Savings accounts are “safe,” but as you can see, the returns are measly.
#2 – Certificate of Deposit
Since you are interested in earning more than an ‘ol savings account can yield, CD’s might be interesting. Certificates of Deposit offer a fixed interest rate in exchange for your investment over a set period of time. At the time of publish, a 5-year CD rate is 2.86%, which would result in your million becoming $1,151,417.
While this is better, it’s still not great. One million bucks has much more earning potential, thus, our journey continues.
#3 – Stocks
Alright, we’re getting more serious here. Higher interest rates come with higher risk, and everyone knows that playing with the stock market can be risky.
Historically, investments in the stock market return about 10% per year (average), which means about $100,000 for your million. We can estimate that investing your million in the stock market could yield about $1,500,000 after 5 years.
Now we’re talkin’!
But aren’t there other options outside the stock market? What about real estate?
#4 – Rental Properties
One million dollars could go really far in the rental property world. Consider this, you could buy real estate properties by putting 25% down. So you could snag a $200,000 single-family residence for $50,000, which means you could invest in 20 properties of that value!
If each home brought in $300 in cash flow per month (rent minus expenses), 20 properties would yield you $6,000 per month or $72,000 per year. At this rate in five years, you could have $1,360,000.
Take into consideration some improvements, rent increases, tax breaks and a few other perks, your total returns would be comparable to those of the stock market.
#5 – Real Estate Syndications
This last one you may not have heard about – investing passively in real estate syndications. Real estate syndications are group investments where, as a passive investor, you pool your money together with other investors and buy large commercial or residential property, like an apartment complex.
Investing passively relieves you of the landlord’s responsibilities of managing rental properties and allows you to earn cash flow without having to find individual properties that match your price point.
The minimum investment on a syndication deal is typically $50,000, but you can invest more than that. For example, you can invest $100,000 into 10 different deals with an 8% average annual return and earn $80,000 per year in cash flow distributions altogether.
Just considering the annual return numbers, we’re coming in comparable to the other investment choices mentioned, but wait, there’s more!
Each of the 10 assets in which you invested will sell after improvements to the property are completed and the market timing is right, usually around the 5-year mark. Often, investors can expect to receive an additional 50-60% in returns at the sale of the real estate syndication deal.
With the cash flow distributions and the profits from the sale in consideration, you could potentially double your money from $1 million to $2 million in just 5 years. Now that’s amazing!
Now that you have thoroughly explored what you could do with $1 Million and how you can make your money earn more money, I bet you can’t wait to get your hands on a windfall. You never know, it could happen!
And when it does, you already know 5 different ways that money can make money – from savings accounts, CDs, stocks, rental properties, and real estate syndications. To learn more about real estate investing and syndications, book a call with us. For access to our private community of like-minded investors focused on wealth-building, you’re invited to join Noblivest Investors Club today.
Growing up, many of us didn’t have strong pillars of financial knowledge, especially if we came from a middle-class family like I did. My parents worked hard but they had no real money management skills beyond getting an education, finding a steady, salaried job, paying their bills on time, and then stashing any extra money into a small savings account or investing in a few stocks.
School wasn’t much help, either. In all my education, not once was there a class that taught about savings options beyond a typical savings account or investment strategies beyond a company 401K. If you’re like me, everything you’ve learned about personal finances and how to get ahead in this world came from your own hard work and dedication toward thinking outside the box.
That’s why in this article, we are more than happy to share the five high-level concepts that can positively impact your ability to generate wealth quickly and efficiently if implemented with timeliness and dedication.
Money Management In Four Steps
A fantastic view of the high-level cash flow journey is to break it down into “four pillars,” as M.C. Laubscher from Cashflow Ninja calls it. Cash creation, cash capture, cashflow creation, and cash control are the four pillars he’s taught to his faithful followers for years.
In the first stage, Cash Creation, your role is to create money. You venture out on your own, obtain a degree, land a salaried position at a stable company, develop connections with industry peers and seniority, start your own business, find a mentor, and hustle toward bonuses and raises. The cash creation stage is the foundation of all the other steps. The key is not to get stuck here for 40 years, like most of the US population!
Next, we have Cash Capture, and in this stage, you create a buffer between how much you bring home and how much you spend. You likely succeed at this by budgeting and saving as much take-home income as possible. The difference between your income and your spending is where you capture cash and use it to fund your investments, purchases of appreciating assets, and your private banking strategy (I’ll explain this in a little bit.).
Once you have emergency funds and other savings in place, have a grip on your budget, and are consistently capturing cash, you move on to the cashflow creation stage.
Take notice of the name: Cashflow Creation – There’s a big difference from the first stage of working for cash. In this third stage, you learn how to use the money you’ve saved and the relationships you’ve nurtured to invest, generate additional cash flow, earn interest, and create income independent from your day job.
Typically, people in this third stage actively seek investment opportunities, including insurance policies, stocks, REITs, bonds, residential real estate, and commercial real estate syndication opportunities.
Next isn’t really the final resting point, but more of an ongoing focus to protect and tweak your financial strategy for the best. Cash Control involves creating a will, pursuing estate planning, maintaining life and disability insurance policies, and ensuring your finances are set up for longevity. You didn’t learn this stuff in school, so it’s up to you to intentionally learn and refine your financial plan toward protecting your assets from creditors, taxes, and lawsuits and providing a legacy for your loved ones.
I’m sure you’ve heard the phrase “making your money work as hard as possible” thrown around, and in a nutshell, intentional action throughout each of these stages will do precisely that!
Private Banking Strategy
The next high-level concept I’d like to share also called “becoming your own bank” and “infinite banking strategy,” is where you use a carefully drafted whole life insurance policy to become your own lender, borrower, and beneficiary all at the same time.
Look at the big-bank business model. They accept people’s deposits in exchange for a “safe” place to store the cash promising minimal interest earnings. The bank loans that money out to others and earns a much steeper amount of interest off the loan. All along, if someone defaults, they are the beneficiaries via collateral, collections, etc. Why save your hard-earned cash for minimal interest and then borrow other money at a higher interest rate? It just doesn’t make sense!
I invite you to explore flipping this widely-accepted business model and create your own private banking system. If you followed the four stages above, you captured cash and have significant savings ready to invest in creating passive cashflow. With this cash, you buy a dividend whole life insurance policy from a mutual insurance company. When written correctly, your policy will allow you to fully fund it quickly and borrow a large portion of that money from inside the policy within the first year.
Now before your head spins, let me explain. When you fund the policy quickly, you become eligible for dividends and earnings inside the policy itself. When you borrow against your policy at a low rate, you’re still earning interest on the full value, AND you get to reinvest that borrowed money into a real estate syndication.
Boom! You’ve taken 1$ and invested it into two places at the same time, AND now you have an insurance policy too! There are many other details to this, which I’ll save you from right now, but just know this is one tax-advantaged option for creating a wealth-building machine.
Value Your Time Most Of All
Your time is your most precious resource, and when you start out, you don’t have much choice but to trade your time for money. You likely spend 40-60 hours a week contributing your expertise and energy in exchange for a paycheck.
That’s not a sustainable life/happiness model, though, right? At some point, you want to have captured enough cash and begun to invest in lucrative deals so that you could reduce the amount of time you have to put in and instead spend it doing things you enjoy.
This is where you reclaim your time. Maybe that means hiring an assistant to keep you organized and run little errands for you, or perhaps that means hiring household services like laundry, a maid, and a landscaper. In all areas of life, I encourage you to explore the activities you do, their worth, whether you like doing them, and how much of your time and energy they take. When you conclude that specific actions are not worth your time or energy, hire them out and, in exchange, use your time to learn about and pursue the next level of wealth-generation.
Another way you can fast-track your wealth-building machine is to intentionally surround yourself with people who inspire you. Find connections ten steps ahead of you, who are doing things you wish you could be doing, and then find ways to infuse their lives with value. Use your knowledge and expertise to support them and further develop a positive rapport with them.
You’ve probably heard the quote by Jim Rohn, “You are the average of the five people you spend the most time with.” Well, recent research shows that who you are is even affected by your friends’ friends and those friends’ friends! This emphasizes how imperative it is to seek masterminds, mentors, and relationships with those you admire.
As you surround yourself with valuable connections, nurture the relationships created, and allocate time and energy-sucking tasks, you create more space in which you can explore higher-level concepts and accelerate your wealth-building journey with fewer mistakes.
Continuously Break Parkinson’s Law
Finally, the greatest, most valuable high-level advice I can provide is that you have to break Parkinson’s Law repeatedly. Parkinson’s Law is the high-level idea that the more income you make, the more you spend.
Most people find that with each raise or bonus achieved, they can afford something they’ve wanted, which is all exciting until years pass by, and they’re stuck with no savings to show for all their hard work.
But you, you’re different. With the four pillars, buying your time back, and private banking knowledge, you are destined to thrive in that Cash Capture stage and ensure your expenses are much less than your income. Beyond that, you have to continually refine your cash capture strategy, always ensuring you have more to invest.
With each raise, cashflow check, and bonus, strive to remain conscious of the temptation to spend more and break that cycle again.
While you focus on the high-level strategies outlined above, we at Noblivest are focused on nurturing relationships with investors (like you) and presenting the best real estate syndication opportunities available to our Noblivest Investors Club members.
For access to our private community of like-minded investors focused on wealth-building, you’re invited to Join Noblivest Investors Club today, taking a huge step toward checking the so-called boxes on several of the high-level concepts discussed herein.