The Case For Real Estate Investing

It is easy to invest during a bull market – the value of all assets are going up. Everyone wants to join the party so to speak. But when the market and economy change, what happens? Many individuals retreat from investing and wait for a better market to appear. In over 40 years in the real estate industry, I’ve been through many market cycles and I have found “timing” the market is difficult. Both the “top” and “bottom” of a market are only known 6 months after the fact. My approach and now Spark Investment Group’s approach is to continue to seek out opportunities even in a turbulent market – continue to acquire good quality assets in solid growing markets and view these investments through a long term 5 to 7 year lens.

Here’s my case for continuing to invest in the real estate market.

As inflation continues to drive prices up, and interest rates encourage you to pull back and save more money, there are still certain things you must continue to spend money on – namely, basic necessities like food and shelter.

If that carton of eggs was $5.99 last year but has jumped to $7.99 this year, you can either choose to buy a lesser brand of eggs or forgo some common egg buzzwords (free-range, cage-free, organic, etc.), but most likely, you’ll still need to buy eggs.

The same goes for multifamily real estate. Even as rents across the country have risen significantly over the last several months and years, rental demand remains strong and continues to grow, meaning that even if the rent is going up, people still need a place to live and are willing to pay the higher rates.

Investing in basic necessities, particularly in a shifting economy, can be one of the best and most stable long-term avenues to grow your wealth.

Further, investing in real estate gives you significant tax benefits, thus further accelerating your wealth creation.

Of course, you should take into account your liquidity needs, investing goals, risk tolerance, desire for passive income, and your current investment portfolio as you decide whether and how to venture into real estate investing as part of your overall personal finance and investment strategy.

A Peek Into The Future: Saving Vs. Investing $100,000

Let’s put our money where our mouth is, hypothetically speaking, and take a closer look at what all this could mean for your money and your wealth creation in the coming years.

Let’s say you had $100,000 in excess capital over and above your emergency fund and any other reserves you wanted to keep on hand. 

Door #1: Save Your $100k

First, let’s take a look at what a savings account could do for your $100k. If you were to do nothing and continue to have your $100k sit in your savings account, it could grow substantially in the coming years.

Assuming an APY of 4.0%, here’s how your savings account would look at the end of the coming years*:

Year 1 – $104,000

Year 2 – $108,160

Year 3 – $112,486

Year 4 – $116,985

Year 5 – $121,665

Year 10 – $148,024

Year 20 – $219,112

*Note that this assumes that the APY would remain the same throughout the 20 years and also does not take into account the taxes you would need to pay on the interest.

Hey, not bad, right? In twenty years, your $100,000 would have more than doubled. That sounds pretty good. 

But wait a second there. Not so fast. 

Remember that there’s a stealth ninja that we haven’t yet taken into account here. That’s right, the inflation ninja.

Right now, inflation is high, but let’s assume that inflation levels out over time, and the average inflation over the next 20 years is a moderate 3% per year.

That would mean that the $219,112 that you end up with in 20 years, while it may seem like a lot now, would only be worth the equivalent of $121,317 in today’s money. 

Suddenly, a return of $21,317 over 20 years doesn’t seem so hot anymore, does it?

P.S. Here’s an inflation calculator so you can play with the numbers yourself.

Door #2: Invest Your $100k In Real Estate

When you save your money, even though the number continues to grow every year, it’s losing value every day that you don’t put it to work.

So now, let’s take a look at that same $100k if you were to take a different action to invest it today instead of save it.

Let’s assume that you were to invest it in a series of real estate syndications with a projected equity multiple of 1.7x over 5 years.

In other words, if you were to invest $100,000 today, you would end up with roughly $170,000 after 5 years, when taking into account both the cash flow distributions and the profit from the sale of the asset.

Let’s also assume, for the sake of this example, that cash flow distributions in the first couple of years of each syndication are fairly low, to be conservative. Let’s assume 2.5% for years 1-2, 5% for years 3-4, and 7% for year 5.

Year 1 – $102,500 ($100k invested in Syndication #1, plus 2.5% cash flow)

Year 2 – $105,000

Year 3 – $110,000

Year 4 – $115,000

Year 5 – $170,000 (factors in the sale of the asset)

Year 10 – $289,000 (Started with $170k invested in Syndication #2, exiting at a 1.7x equity multiple after 5 years)

Year 15 – $491,300 (Started with $289k invested in Syndication #3, exiting at a 1.7x equity multiple after 5 years)

Year 20 – $835,210 (Started with $491k invested in Syndication #4, exiting at a 1.7x equity multiple after 5 years)

You’ll notice that the numbers get off to a slower start in years 1 and 2 due to the lower cash flow assumptions we’re using in this example, but the numbers take off dramatically after that, and the final number – $835,210 – beats the final number in the savings example – $219,112 – by a whopping $616,098.

That $616k is essentially your opportunity cost. In other words, if you were to do nothing and just keep your money in a savings account during that 20 years, the $616k is the potential wealth you could have created in that time.

The reason that the number jumps so dramatically in the latter years is because you are reinvesting at a higher basis with each subsequent real estate syndication investment. This is in essence what people talk about when they talk about snowballing your money.

When factoring in the same 3% inflation rate over 20 years, that $835,210 is still worth roughly $462,436 in today’s money, meaning that you would have more than quadrupled your money in those two decades, even when accounting for inflation.

And, this doesn’t take into account the tax benefits of investing in real estate, which would juice your wealth building journey even further.

Door #3: Invest Your $100k In Real Estate, But Wait 5 Years

Let’s throw one more scenario in here, to factor in the cost of inaction. In other words, given everything going on in the economy right now, even though you might still believe in the long-term value of multifamily real estate investing, perhaps you’re thinking of sitting out for a few years, to see how things go before you jump into an investment.

Let’s take a look at what 5 years of inaction can do to your overall wealth creation over 20 years. Let’s say that this year, you put your $100k into a savings account at 4% APY, then invested into a real estate syndication at the 5-year mark.

Saving $100k at 4% APY for 5 years:

Year 1 – $104,000

Year 2 – $108,160

Year 3 – $112,486

Year 4 – $116,985

Year 5 – $121,665

At year 5, you invest in your first syndication at a 1.7x equity multiple over 5 years:

Year 5 – $121,665 invested

Year 10 – $206,830

Year 15 – $351,611

Year 20 – $597,740

After 20 years, your total capital would be at $597,740, which is nothing to sneeze at. But when compared to the $835,210 that you could have if you were to invest now instead of waiting 5 years, you can see the opportunity cost of delaying.

That’s an opportunity cost of $237,470 for waiting 5 years. 

Of course, you can use this basic scenario to extrapolate out the impact of waiting for less or more time on your overall wealth.

Why Investing In Real Estate Is A MUST For Building Wealth

The bottom line from all these scenarios is that, whether you choose to invest right now or down the road, investing in real estate is crucial to your overall wealth creation. The longer that your money sits in a savings account, the more value it’s losing.

Over time, the opportunity cost could be staggering and could have severe consequences for your overall wealth potential – not just for you but for your family and future generations as well.

So whatever you do, do something. Take action to educate yourself so you can find the right real estate investments for your goals. 

Even if you’re not yet ready to take the plunge to invest in real estate syndications, do your research to figure out your lane and what you’re most comfortable and interested in as far as investing goes. Here are some ideas to get you started:

• Rental properties
• Short-term rentals
• Mutual funds
• Money market accounts
• Real estate investment trusts
• Stock market
• Exchange traded funds

Each of these has its own pros and cons, as well as things you should take into consideration, like risk tolerance and capital gains tax, so do your own due diligence.

The point is to take action on something. If that means making an appointment to talk to a financial advisor, joining our Spark Investment Group Club to learn more about real estate, asking friends and family about their experience with financial advisors, mutual funds, retirement accounts, and more, or even trying a stock market simulation game,

While everyone else is running scared and frozen with inaction, now if your opportunity to jump in, take advantage of some of the best investment opportunities out there, and geometrically grow your wealth.

Next Steps

Here at SPARK Investment Group, we have a variety of options for you to help you learn about and invest in real estate – a great hedge against inflation and rising interest rates.

Through real estate syndications, you can diversify your portfolio take advantage of the cash flow, equity, appreciation, and tax benefits. 

Click here to get started, or check out the helpful resources below.

Invest Now 

If you’re accredited and ready to invest right now, we invite you to check out our open deals page to learn more about our current or upcoming opportunities.

Learn More

Spark Investment Group website is a great place to learn more about passive investing in multifamily syndications.

Our site contains dozens of blog articles, podcasts, and you tube videos that cover all aspects of multifamily syndication investments.

Connect With Us

If there’s ever anything we can do to help you on your journey, feel free to email us at arn@investwithspark.com or call/text us at 650-575-6114.

To learn more about real estate investing and syndications, reach out to us at https://investwithspark.com/contact/ today!