The Power of Cash Flow Producing Real Estate

Posted on April 29, 2021 by Trevor Shakiba

If you want to build long-term, indestructible wealth, investing consistently into real estate which cash flows should absolutely be an asset class within your overall portfolio. Whether you have $100,000 or $1 million, the math is the same, and more importantly getting paid while your investments appreciate is powerful!

Here is an example of what a typical investment strategy might look like if you plan to put $100,000 into real estate every single year. As you might imagine, not every real estate investment goes according to plan and with any investment there are risks.  So, evaluating the opportunity and operator are important in mitigating your risk.  Nevertheless, here is a rough guide for what you might expect while implementing your real estate investment strategy.

Year 1

Once you have invested in your first real estate offering, you have accomplished something remarkable, which many people never do.. You Took Action!  Congrats, this is a big deal!

Assuming a good first investment, a 7.5% cash on cash return (Yield) is very achievable and would equate to $625 in monthly distributions.

Year 2

The following year you receive your first tax document from this investment. This is called a K-1 which lists all of your income and expenses.  Due to the current advantages of taxes associated with real estate your Schedule K-1 from the first investment will likely show substantial paper losses (even though you received a distribution of $625 every month since the deal closed). These losses will allow you to offset money you made from this first investment and potentially from your regular income.

Also in year 2, you invest another $100,000. This will increase your monthly passive cash flow from $625 to $1,250.

Year 3

The next year you will now get two K-1 tax documents. This is a tipping point in your investing career as you will start to unlock the full benefits of what real estate can provide.

It won’t be long before you invest another $100,000 into your third real estate deal which means three monthly payments of $625 ($1,875/mo Total). Now, you have increased your yearly income by $22,500, and more importantly it is 100% passive.  Moreover, don’t forget about the appreciation over time of your equity within each investment!

Year 4

In year 4, your first investment is now being sold!  In the sale, you received your initial $100k back plus an additional $50k due to the asset appreciating.  Don’t forget you received $30k in cash flow over the last 4 years as well!  You then decide to take the entire $150k and reinvest in another opportunity plus your regular $100k annual contribution.  So, you now have $650k in total invested in a diversified portfolio of cash flow producing real estate assets which yield 7.5% (hopefully more since rent goes up over time not down!).

$550,000 X 7.5% = $3,437.50 per month or $41,250 per year

Year 5

In year 5, your second investment is sold!  As with the first asset, you got back your $100,000 with an extra $50,000 in profits. Since you’ve had nothing but success so far, you decide to roll everything again into a new cash flow producing opportunity, and invest your annual $100k savings.  The math now looks like this:

$800,000 X 7.5% = $5000 per month or $60,000 per year

Years 6-10

If you haven’t noticed already things are beginning to snowball! Over this 10-year period, you have managed to save $1 million ($100k per year) in cash out of your ordinary income plus an additional $675,000 from gains in your first 7 investments.

By the end of Year 10, you will have $1.525 million in a multitude of cash flow producing real estate opportunities, hopefully across many different markets and asset classes.

$1,525,000 X 7.5% = $9,531.25 per month or $114,375 per year

Six figures of annual passive income which is likely not taxed at all or very little due to the phenomenal tax advantages real estate currently allows for!  This, my friends, is how true financial independence is achieved:  When your passive income is equal to, or exceeds your earned income.

You have now unlocked the secret to building wealth and created more time which is something you can never create more of.  More time with your kids!  More time to volunteer! More time (and Money) to give to charity!  More time to pursue what you are truly passionate about!

This is why I’m so excited about real estate and presenting, “A New Way to Invest” with Shakiba Capital.  Let me know if you want more info and look out for our next investment opportunity in the near future!