EP189: Profit or Peril? Rental Properties Show Down!
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👉 Which one of these investments do you think an investor can make $100,000 dollars fastest?
The answer may surprise you, so if you’re stuck in a position where you’re wondering how to make more money from your investments, well the good news is we will be breaking it down for you.
Now, in today’s episode, we will compare our investments in two assets and share them with you the numbers so you can draw a conclusion for yourself.
PSA quick lawyer talk: this is our specific experience, by no means are we endorsing or guaranteeing any specific returns you may achieve, all investments carry an inherent risk. We are simply sharing our unique experiences, which may be deemed extraordinary.
Back to our regularly scheduled program! 📺
Today, we will show you how you can gain clear direction on the right investment for you.
And we will also show you how to avoid the wealth killer that will make you earn zero dollars every time without fail.
In order to do this allow us to whisk you away to a cinematic classic: Back to the Future Part II. 🎬🎥
Picture a bewildered Marty, freshly plopped into a 1985 that’s familiar, yet… off.
Homes wear the crinkles of neglect, his normally pacifist principal’s gone rogue, wielding a shotgun with nonchalant bravado, dispensing lead to random passersby.
As Marty zigzags through this topsy-turvy landscape, he skids to a halt before Biff’s henchmen, loitering ominously before a casino.
With smirks playing on their lips, they extend an invitation to Marty, a fork in his road: “the easy way, or the hard way”.
Cue dramatic music and tighten your seatbelts – we’re about to dive deep into a choice conundrum not unlike picking your investment.
Like Marty, in his alternative universe, we all as investors have two paths to real estate wealth.
The Hard Way
This first path is the traditional route, one that most of us have the highest level of familiarity with because it’s what we’ve heard is how you get into real estate.
Navigating the slow lane to real estate wealth, you might embrace hard work, frugality, diligent saving, and careful investments in small, value-added single-family rentals.
Step by cautious step, you raise rents, build equity, refinance, and repeat. 😬😬
It’s the long game, it’s a reliable but lengthy game – at least that’s what we’ve been told.
With this path, the idea or the hope at least is that you can slowly start adding one more property methodically to your portfolio over time; however, this isn’t your grandparents’ 50s and 60s reality.
With the home prices that have shot up 5 to 10 times what it was back then, the reality is at the price that these homes are going for today you’d be lucky to break even when you account for deferred maintenance, rise in taxes and insurance, and delinquency. 😫😫
We experienced this reality for ourselves, back when we were wearing our rose-colored glasses when we purchased an out-of-state rental property in Memphis, TN in May of 2018.
We bought this property through a “reputable” turnkey property provider.
Essentially, the role of a turnkey real estate company is to provide you with properties that are purchase-ready and often already rented.
Their role is to handle the nitty-gritty details from property acquisition, and renovation, to tenant placement, allowing you to invest in real estate passively and immediately start generating rental income. Well, that’s what they told us.
But our reality is much much different.
This can be a full episode on its own, but we won’t dive into the weeds for now. 😝😝
So, we purchased this property in May 2018 for $92,900, and we put in $30,000+, down payment. $92,500 sold.
You heard that right, we sold this property for a loss because we wanted to as quickly as possible recalibrate the path from the hard way to the easy way.
More on that later.
Our property’s honeymoon glow dimmed faster than expected.
Within the first two months, a tenant mysteriously disappeared, leaving both the property and lease abandoned and us in shock to pay down the mortgage out of pocket. 🤯🤯
This unexpected turn threw us—green, out-of-state investors—into a financial quagmire. Releasing the property became a drawn-out, cumbersome process riddled with recurring tenant delinquencies.
Over a mere three years, the home experienced a carousel of tenants, each exiting as swiftly as they entered.
Throughout our hold, unsettling thoughts gnawed at us.
The property wasn’t appreciating in value…
And while it wasn’t draining our coffers monthly, its aging bones forewarned a looming, hefty repair bill—perhaps for a roof, plumbing, or another significant aspect.
This, coupled with wear and tear from tenants with scant regard for property care, painted a grim picture.
A lackluster property barely contributing positively to our financial portfolio seemed destined to morph into a financial sinkhole.
Opting for prevention over cure, we decided to cut our losses early, steering clear of learning the hard, expensive lessons this investment threatened to school us in.
Ultimately, we decided to offload this property, taking a financial hit in the process. 🥊
When considering the time ⌛ value of money, this investment wasn’t yielding the returns we aimed for.
Despite incurring a loss at the sale, we believed that, in the grand tapestry of time, reallocating those funds into a multifamily apartment would be a savvy and smart move, promising substantially greater growth over an identical period of time.
The Easy Way
While Back to the Future’s “Easy Way” involved Marty getting an unsolicited knock on the head with a pistol, our version of the “Easy Way” is, thankfully, quite literal — no firearms or physical altercations involved!
Having described the “Hard Way” path, you might wonder, how does the “Easy Way” distinguish itself?
Picture a different, speedier route to wealth.
Envision a streamlined pathway to wealth accumulation. 🙌🌈
Here, there’s no need for you to worry about tenant repairs, rent collections, or even personally guaranteeing on the loan.
Instead, your focus shifts to aligning with savvy investments, particularly those managed by experts in the field.
This is where the “Easy Way” shines for you. ☀️
Engaging in multifamily apartment syndication allows you to participate in these expertly orchestrated and managed investments, offering you a seat at the table of opportunities previously accessible only to ultra-high-net-worth individuals.
In this setup, you’re positioning yourself on a trajectory that could potentially lead to accelerated wealth growth, all within the dynamic arena of real estate.
Some of the areas that make this path the “easy way”
1️⃣ Streamlined Management
2️⃣ Economies of Scale:
3️⃣ Consistent Cash Flow
4️⃣ Professional Due Diligence
5️⃣ Diversification
6️⃣ Limited Liability
These advantages were an eye-opener for us and needless to say we have been all in ever since.
As a point of comparison, let’s take a look at a passive investment through multifamily apartment syndication that we made only a few months after the purchase of the Memphis single-family rental.
These benefits were a revelation for us, and it’s safe to say, we’ve been staunch advocates ever since.
In August 2019, we parked $50,000 in an investment.
From that moment onward, our involvement was minimal. 😍😍
Our phones 📞 weren’t buzzing with incessant calls from property managers; no leasing dilemmas landed on our desks. In essence, our investor role was genuinely passive.
Beyond filling out the requisite paperwork and initiating the fund transfer, our to-do list was blissfully empty.
The heavy lifting?
All are deftly handled by the general partners steering the investment ship.
➡️ This hassle-free venture yielded an 8% annual cash return during our investment tenure, culminating in a property sale 27 months later with a total return tripling our initial stake—our $50,000 ballooned into a hefty $150,000+ in just a tad over two years.
Stack this experience against our single-family rental odyssey unfolding over a similar timeline, and it becomes crystal clear why we’ve hitched our wagon to the “easy way”.
Now that you understand why picking the “easy way” is a no-brainer move for your investment and wealth’s sake, let’s see what we can do to make sure we can avoid the wealth killer that will make you earn zero dollars every time without fail.
Wealth Killers
NO. 1 Investing in Fads Without Fundamental Soundness: Many investors are tempted by the latest investment fads or trends that promise quick returns.
These could range from speculative assets, like certain cryptocurrencies or non-fungible tokens (NFTs), to bubbles in various markets.
While these might offer substantial gains in the short term, they often lack fundamental value and long-term viability.
NO. 2 Lack of Knowledge and Understanding: Investing in assets or markets without a clear understanding or without conducting due diligence is a recipe for disaster.
Without knowledge of the investment’s intricacies and potential risks, investors are gambling rather than making informed decisions.
This lack of understanding leads to poor investment choices that don’t align with one’s financial goals, risk tolerance, or market realities.
Palmy: It exposes the investor to unnecessary risks and often results in financial loss.
NO. 3 Insufficient Diversification: Putting all eggs in one basket is a risky strategy.
While focusing on a single asset or market might bring significant returns if things go well, it also means that the investor is highly vulnerable if things go south.
Without diversification, a downturn in a particular asset or market can wipe out significant portions of the investor’s wealth.
Diversification is a key strategy to spread risk across different assets and protect against severe losses in any single investment.
Thank you for tuning in and bearing in mind that wealth creation isn’t limited by time; it thrives through owning assets. Take the first step today and start owning assets, breaking free from being an asset for the rest of your life.
Until next time, keep thriving on your journey to success! 🤓🤓
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