035: $50,000, 10 Years, and You: Your Long-Term Apartment Syndication Plan
A quick question for all of you…
What would you have told yourself a decade ago? 🤔🤔 Seriously, think about it. Would you have taken that vacation that actually ended up putting you in more debt? Would you have selected that school, college or major that you may or may not be using right now? Would you have told yourself to chill on the body glitter? ✨
If we could go back in time, there are so many different things we would have done differently. From fashion choices to major life-altering decisions. And while we all can’t predict the future, here at the Kitti Sisters, and on this podcast 🎙️, that’s never stopped us from trying.
We’re in the CIA– Control Issues Anonymous.
Today, we’re going to start planting that apartment syndication seed a little more deeply into your minds. The seed in question will be $50,000 and we’ll be planting (read: investing) every year for 10 years.
We get it, $50,000 is a lot of money. Especially when you’re talking about investing that amount PER YEAR. A lot of people’s starting salaries were in the $45-50K range and now you’re listening to us thinking, “you want me to invest that PER YEAR?” And we hear you, but maybe now you’re further along in your career, making more money or maybe you’re living that dual-income life, and have the capacity to start saving for that goal a little faster.
Our point is that once you start seeing the potential result, you might be more willing to put in the work it takes to get there over the span of 10 years if you were to invest $50,000 per year into apartment real estate syndication starting today. 😗😗
Now stick with us, a decade right now can seem like a long time, but as the old saying goes “the best time to plant a tree was 20 years ago, and the second-best time is now.”
Like most one-year-olds, this year we’re just taking our first steps. Your goal in this first year is to get to that $50,000 in savings and invest in Apartment A.
Oh yeah, and before we get any deeper into this episode, we will be referring to your hypothetical apartment investments as letters. Think Sesame Street. A, B, C, D– you get it!
Apartment A is in an incredible, up-and-coming location like Dallas or Fort Worth. Soon after, you start to receive monthly cash flow distribution checks of about $333 per month. Which is about 8% per year which is fairly standard for most of the deals we do. Sure, it’s a modest start, but that means in your first year maybe you can afford to splurge a little more at Target and not feel so guilty about your candle addiction. Progress already!
In the 🌱 spring of your second year, you receive a magical piece of paper called the Schedule K-1 for your investment in Apartment A from last year. What makes this piece of paper so magical is that it’s a tax document that shows your income losses from your investment.
You might be thinking How is that even close to being anything whimsical?!
Not that we consider ourselves fairies or anything, but the pixie dust on this document is that even though you were getting all of those monthly cash flow checks, you also get a hefty tax-write-off, which you can also use to offset not just the cash flow returns, but potentially your ordinary income as well.
Later in Year 2 of your apartment syndication journey, you invest the $50,000 you save into your second apartment complex, Apartment B. Now you’re getting $666 per month in cash flow, $333 from each of the two apartment syndications you invested at an 8% return. 🙌
This means next year an even greater tax write-off in the form of a K-1 that will come in Year 3. While it may not be a 🦉 Hogwarts acceptance letter, we’ll take any magic we can get when it comes to keeping the money you make.
In Year 3 of your apartment syndication journey, for the first time ever, you’re actually looking forward to tax season. H & R Block commercials excite you, Turbo Tax ads boost your energy because it reminds you of the glorious moment of time you’re in. Your two K-1’s come in the mail, and your 3-year-old apartment syndication self starts to feel like a 3-year-old on Christmas morning, giddy open up the mail.
That same year, you invest another $50,000 into Apartment Complex C. You start to receive three $333 checks every month totaling almost $1,000 per month, or $12,000 per year. 😎😎
Are you seeing what we’re saying? As time goes on, your money starts to grow. Little by little with more strategic investments and fine-tuning your taxes you might be thinking to yourself “Why didn’t I do this sooner?”
Halfway through Year 4 and you get word that Apartment Syndication A (from Year 1!) that the renovations are complete and the sponsors are looking to sell the property. Because you were smart and invested in a property that was in a hot submarket in a growing metro area, the listing gets a lot of attention and is soon purchased.
You receive your original $50,000 that you invested from Apartment Syndication A back, plus an additional $25,000 in profits.
For some people, that influx of cash of $75,000 is enough. But you, you’re smarter, savvier, and listen to Cashflow Multipliers and know that money can go even further. This is why you invest all your returns from Apartment Syndication A ($75,000) plus the $50,000 you’ve saved for your Year 4 investment into Apartment Syndication D.
For those of you keeping score at home, that’s a grand total of $225,000 invested across three apartment syndications each with an 8% average cash flow. This means that you are now expecting about $18,000 per year in annual cash flow distributions or about $1,500 per month‼️
In Year 5, now it’s Apartment Syndication B that’s been sold with all the fixings and trimmings that the renovation comes with. The place is gorgeous! So it’s no wonder why it sold so fast and the return is the original $50,000 you invested from Year 2 plus an additional $25,000 in profits.
You’re starting to think to yourself: Wait, why doesn’t everyone do this?
You combine that $75,000 with the $50,000 you save in Year 5, and you invest all of that in Apartment Syndication E, bringing your total invested capital to $300,000.
This means your monthly cash flow checks would total about $2,000. 🤓🤓
So far, Year 5 is the one to beat and wait till Years 6 and 7 come along.
Are you starting to see a pattern here? The same amount invested each year, the same amount of profits, the same amount of tax savings. Year after year. It’s not as scary once you start to understand the 30,000-foot view of apartment syndication and how you profit from it.
So now that you understand this at an elementary level, let’s speed it up a little and get that degree. You totally got this.
In years 6 and 7, Apartment Syndications C and D are sold. Each year after each apartment was sold, you added $50,000 of your savings to the returns you receive from those exited deals. In year 6, you invest $125,000 into brand new Apartment Syndication F, and in year 7, you invest another $125,000 into new Apartment Syndication G.
You bust out the calculator and after putting together some basic math, you realize you have a total of $487,500 invested across 5 apartments. Every month, you get a six-monthly cash flow distribution ACH (for Syndications B-G), totaling $3,250 per month, or about $39,000 per year. 🤩🤩
Not bad for not lifting a 🔨 hammer right?
Apartment syndication is like you’ve got an invisible worker in your home generating income but not adding to any of your expenses. And remember the secret sauce to all of this, because of all the depreciation, you’re continuing to show paper losses, so you’re not taxed on any of the cash flow you receive.
And that’s making Uncle Sam work for you.
Time is sneaky, and before you know it, another three years have passed. A lot of life and a lot of lessons have happened to you in those 10 years. And maybe a few more wrinkles than you’d like to admit. As you inspect yourself in the mirror, your phone buzzes to let you know that another cash flow check has been direct-deposited, and you make a mental note to treat yourself to some gourmet ice cream with all that passive income.
Then your friend and foe, nostalgia starts creeping in, reminding you how you even got here to begin with. You’ve been investing $50,000 every year for 10 years. Six of the deals you’ve invested in have exited, each time leaving you with a healthy return to reinvest into the next apartment syndication.
Over these 10 years, you’ve saved up $500,000 in cash, which is no small feat. You could have put that $500,000 into a down payment on your dream home. You’d only have to pay $10,000 or so every month for the next 30 years, no biggie.
But you didn’t. You chose to invest that $500,000 instead because you’re smart and savvy like that. And you may or may not have had our voices in your head in the background. WWTKSD?
What Would The Kitti Sisters Do? 🤪🤪
So let’s do the final round of math, shall we?
In Years 8, 9, and 10 you exited deals that left you with healthy returns to reinvest.
By the end of year 10, you now have over $880,000 invested in multiple apartment syndications across multiple markets and asset classes, producing 👉 $70,500 in passive income per year. Per year!
That’s more than the median household income in the US!
To Year 10 and Beyond
We don’t mean this in any minimizing way, but by simply doing some due diligence and filing some paperwork a couple of times a year, you’re making more than the average household in the United States, and that’s no small feat! This is the joy of passive income. Can you kinda see why we’re a little obsessed with this?
And now you have all the power. Maybe this means reducing your hours at work, going into contracted gig work, making your own hours, or stepping away altogether. The point is, you have more flexibility to do more with your life now than ever before. You have your life back.
You’ll be able to splurge for fun once-in-a-lifetime experiences, like taking your kids on a dream trip to Disney World, going on an immersive meditation retreat, or staying in an overwater bungalow in the 🏝️ Maldives.
Okay, maybe that one is mainly our dream but hey, it can be yours too!
You’re able to give more freely to charities and non-profit organizations that you love. You can give back to the community and volunteer your time to causes you’re passionate about. 🙏🙏
Perhaps you use the passive income to send your children to private school or hire a personal chef (can we get an ‘amen’ from the moms?). You might even consider moving your parents to a nicer place where they can retire more comfortably.
Most of all, you rest easy knowing that you’ve created a lasting legacy for your children. Someday, they’ll continue to invest and start their own passive income journeys. You’ll be able to rest easy knowing that you won’t be a burden to them once it’s your time to retire. Those lines forming on your face simply won’t cease!
Terms and Conditions Apply
Okay, so this is the fine print moment where we have to have some real talk. We’re always keeping it 100 with you guys because we know how messy real estate and real estate investing can get.
Simply put: real-life investing is not clean.
You can’t predict exactly when a deal is going to exit or sell. Cash flow returns won’t always be guaranteed at an exact 8%. And you may not be able to find a great deal to invest in right when you’re ready. The real estate market, much like the universe, is operating in its own time.
The scenarios we talked about in this episode are based on an average hold time of 3 years before the deal exits. 🤟
While most of our apartment syndications project a 5-year hold, most of them exit sooner than that.
You should also know that the numbers in this scenario don’t include reinvesting the cash flow, which would further accelerate the growth. Rough calculations for capital gains taxes and depreciation recapture at the sale of each property have been incorporated, though the keyword here is “rough.”
In the end, it’s unlikely that you would see these exact numbers.
It’s possible that the numbers could potentially be slower to grow, but it’s also quite possible that you’ll see them grow much faster. Everything we talked about isn’t an exact prescription. And be sure to check out the show notes at thekittisisters.com/podcast to see the chart we’re referencing. The chart, rather, is meant to demonstrate how diligence and patience, together with compounding returns, can dramatically change the course of your financial future.
If you’ve learned anything from this episode, we hope it’s that you understand that real estate investing is not a “get rich quick” scheme.
Did you miss the part where we said 10 years? This path for generating income isn’t for the faint of heart or easily deterred.
What we can tell you though is, that this path will give you a solid foundation for financial gains for years to come steadily, calculated, and with time. And your future self will thank you for it.
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