I have been sharing a lot of facts and figures behind investing in Multifamily Real Estate over the last few weeks. Today I wanted to clue you into the Real Reason I have chosen this vehicle as a key part of my portfolio…Peace of Mind.
I recently shared an article on LinkedIn from Barron’s that suggested that the 4% rule that Financial Planners have been using for decades may now be the 3% rule. The rule states that you should only use 4 percent of your nest egg each year in retirement so that you have a good chance of not running out of money when you are 92+ years old. The reason for the change to 3% is that everyone is living longer and so based on your circumstances you may need to live on less so you don’t RUN OUT OF MONEY at the end of your life.
Investing in Multifamily real estate can help solve the issue of running out of money in two ways.
First, if you invest in a large, stable, cash-flowing apartment building with a professional management team you should be able to expect a predictable return on your investment for the five to ten years that the syndication team plans to hold the property. This means that you can live on more than 3 to 4 percent per year because the property shouldn’t experience large swings in cash flow like those experienced in the stock market. Once management stabilizes the property in the first year or two, you should be able to count on a healthy return that you can live on.
Building a portfolio of several apartment investments in several different markets with a handful of solid syndication management teams will provide you a nice stable, diversified cash flow each quarter. Today, my four apartment syndication investments are returning approximately eight percent of my initial investment annually, paid out in quarterly or monthly installments.
Secondly, while you are holding the investment over five to ten years, three very important things are happening:
- Inflation, targeted to run at 2% annually by the FED, is systematically making the real asset, the apartment building you own, go up in value.
- The new syndication team is investing capital into the property to improve it to current market conditions and this allows rental rates to be increased to market levels. This increases Net Operating Income and the value of the property.
- Finally the debt on the property is systematically being paid off by the renters each year.
These factors combined should result in a significant gain on the sale of the property at the end of the five to ten year holding period for you!
So let’s recap…I get to live on more than three or four percent during my investment in a property and when the property is sold, I get my original investment back plus a significant one time return. This means I can now invest both my original investment amount plus the gain in new properties that will increase my cash flow and standard of living.
Dependable Quarterly Cash Flow plus an Increase to you Base Investment every five to ten years results in…Peace of Mind!
Here’s to your Wealth and Happiness!
Dan Engdahl, Co-Founder Multifamily Connections, LLC