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  • Writer's pictureJohn Pearl

Retire Earlier with Hands-Off Real Estate Investing

Updated: Jan 3, 2023

Key Takeaways:

  • Outperform the stock market 3x in the next 30 years

  • Retirement age is increasing, reduce yours by passively investing in real estate

  • Passive real estate investing provides pass-through ownership benefits

Let’s talk about passive real estate investing as a strategy for retirement.

I often talk about my journey towards financial freedom and the ability to live life on my own terms, but this path is not for everyone.

Many folks love their careers, are making great money, and plan to do so well into their golden years.

According to a 2022 Gallup Poll, Americans’ target retirement age is now averaging 66 years old.

For me, at age 36, this is exactly 30 years away.

Allow me to take you on a 30-year journey, following the growth of a $50K flat investment in the stock market vs being a passive/silent partner in a real estate syndication (a fancy term for a group of people pooling their money together to buy real estate. Learn more about how syndications work here).

Lets start with the stock market:

Since 1992, the S&P 500 has averaged a 9.89% annual return.

Although past performance is not indicative of future results, let’s say that if you were to place $50K in the stock market (10% annualized return) and let it sit until 2052, you would have somewhere around $992K.

Not too shabby for such a minimal amount of work!

However, what if I told you that you could make your $50K go a LOT further in the same amount of time simply by investing it in a different passive asset?

The world of real estate syndications gives people the opportunity to own shares of large assets (apartment buildings, self-storage facilities, mobile home parks, RV resorts) without having to do any of the work.

Larger assets are more efficient and provide stronger returns for investors.

Similar to a REIT, right? (A REIT is a real estate investment trust that allows you to purchase shares on the stock exchange and pays out a dividend. In August of 2022, the average REIT dividend was 3.4%).

Not exactly..

Syndications provide pass-through ownership benefits that REITs do not.

In a syndication, investors own shares of the asset itself, whereas REITs only offer a share of ownership in the company (like a stock).

This enables investors to write off their passive income as a tax loss due to depreciation.

There are even more advanced strategies (Real Estate Professional Status) that enable investors to use these losses against their W2 income.

Most folks invest in real estate syndications for the same reasons anyone invests in more traditional real estate.

  • Cashflow

  • Appreciation

  • Tax benefits

  • Capital preservation (your investment is backed by a physical asset in the real world)

The only difference with syndications is that it is completely hands off.

A typical return profile in an apartment syndication looks like this:

  • 3–5-year hold period

  • 6-8% cash-on-cash return (invest $100K, receive $8K/yr in cashflow)

  • 15% average annual return

  • 2X equity multiple (double your investment over the course of hold period)

Now, back to the journey of the $50K investment.

If you take that same $50K and invest it as a limited partner in a real estate syndication with the intent of reinvesting the cashflow and profits for 30 years, you will be in a much better place than the stock market route.

You will double your money every 5 years and reinvest the profits.

Follow along:

  • 2022 – Invest $50K in deal with 2x equity multiple.

  • 2027 – Invest $100K in new deal(s) with 2x equity multiple

  • 2032 – Invest $200K in new deal(s) with 2x equity multiple

  • 2037 – Invest $400K in new deal(s) with 2x equity multiple

  • 2042 – Invest $800K in new deal(s) with 2x equity multiple

  • 2047 – Invest $1.6MM in new deal(s) with 2x equity multiple

  • 2052 – Now we have $3.2MM to do whatever we want with

Now that we're at the age that most Americans are projecting their retirement, we can reinvest that $3.2MM into a deal with the same return profile as before and start enjoying the cashflow.

$3.2MM at 8% cash-on-cash return = $256K/year or $21,333/month in cashflow.

You may be thinking that this sounds absurd, but it is 100% within the realm of possibility.

Sure, anything can happen, but 2x equity multiples happen quite regularly in syndications and often much more quickly than their 5-year projected hold periods.

*Even if these deals averaged a 1.7x equity multiple over the 30 year period, you would have over $2MM to play with in 2052.

Now, just imagine you were able to throw in another $50K investment or two outside of the original!

The velocity at which you can redeploy your money is so much greater with syndications, while still enabling you to remain hands off so you can focus your efforts elsewhere.

To Freedom!

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