It is no secret that we absolutely love investing in real estate, and over 90% of all millionaires agree! Real estate is the best asset class to be investing in, and we are going to show you with some simple math.
First, let's start with the basics of the banking system: Your bank is robbing you! Every time you put money in the bank, they then have the opportunity to leverage your savings with their fractional banking. If you haven't heard of this concept it's simple: if you put $100,000 in the bank, they can lend that $100k out up to 10 times leverage, all while paying you pennies on the dollar! So, your hard earned $100,000 is now the banks asset and they will pay you 0.06% to keep it with them....all while they lend it out at 4%-15% to other people in need of loans. So in turn, the bank makes all the return, while you make a measly 0.06%! So if you are trying to double your money, it would take you 1,200 YEARS to double your money in your savings account. I don't know about you, but I don't have 1,200 years to wait!
Now that we established that the banking system is a total scam and you actually lose money by leaving it in there, let's explore other options that can actually double your money!
Let's start with stocks: A typical blended stock portfolio is earning an average of 10% over the past 10 years (not including the awful financial crisis we are in right now). At that rate, your $100,000 investment would take approximately 7.2 years to double...that's a much shorter timeline than your friendly neighborhood robber, I mean banker, which will take 1,200 years. So now that you saved over 1,192 years, you only have one more thing to worry about...everyones least favorite uncle...you guessed it, Uncle Sam!! Nobody loves seeing you make a great return in the market than Uncle Sam! With tax rates from 20-40%, why wouldn't they? So if you are giving 20% to the IRS, you are still left with an 8% return, which will take you about 9 years to double your money, still a very good return and typically a safe investment. The thing that really gets me with stocks is that unless you are self managing, you are paying all sorts of unnecessary fees to your financial advisor so that they can have a fancy corner office that overlooks downtown...I would rather keep that money for me and boost my investment...no offense to my financial advisor friends, but I certainly won't be paying for your office space or your salary to tell me where to put my money...especially since most of you think that real estate is too "risky"...
Now onto real estate, specifically, Commercial Real Estate investing. We focus specifically on Multifamily and Self-Storage, but there are several other asset classes within the commercial real estate space that are extremely safe and lucrative, we just prefer to go with what has performed best for us and our clients.
Lets walk through a typical investment scenario: $100,000 in a real estate deal, with a 7% return. Now you might be thinking, well thats only going to be 7%, which is worse than the stock market, and will take over 10 years to double my money! Well, think again! The major components of real estate that make it so lucrative are the same principles the bank is using, which is leverage. $100,000 allows you to buy $500,000 of real estate. You also get this amazing thing called DEPRECIATION!! Which allows you to deduct the "loss of value" as an expense on your balance sheet. With depreciation, you can write off the entire value of that building over 5 years with bonus depreciation, or 27.5 years without, essentially allowing you to lose money on paper every year, while still cash-flowing. You also have tenants paying down your loan at approximately 1.2% annually, and your property is appreciating, typically at a rate of 3.5% annually. When you combined all these factors, your return is significantly compounded.
Assuming you invested $100,000 and are in the 30% tax bracket, you will receive around $27,000 of depreciation on your real estate investment. That $27,000 will come off your income taxes. So, your RE investment made $7,000 of cashflow and then lost $27,000 on paper (Depreciation), leaving you with a $20,000 reduction ($27,000 depreciation - $7,000 cashflow) to your income. This translates into approximately $6,000 of tax refunded to you that you would have normally had to pay on your salary and business income. Meaning your total return is the $7,000 of tax free cashflow, plus the $6,000 of income tax refunded due to the $20,000 loss on your return, equaling a total return of $13,000!! That is a 13% return, which essentially doubles your money in 5.5 years!
5 Year Return on $100,000
Bank= $30 woohoo!
Stocks= $50,000 - $10,000 Taxes = $40,000
Real Estate = $35,000 Cashflow + $30,000 Tax Savings = $75,000 Return
BUT, there's more! Remember that debt pay down and the price appreciation? Here is a simple breakdown to show the amazing powers of real estate investing:
Now your total return on the real estate investment = $75,000 (cashflow & tax savings) + $23,430 debt paid down + $76,343 Appreciation = $174,773 of which $35,000 was tax free cashflow, $35,000 was tax saved on your income taxes, and nearly $100,000 of equity in the asset, which is almost as much as your initial investment. This essentially doubles your money every 5 years for the rest of your life. You can rinse and repeat, over and over again to build generational wealth!
Now, what if you do not have time to operate a real estate deal?
If you are a doctor, a lawyer, an engineer, CEO of a company, an architect, airline pilot, or anyone who really does not have enough time to operate a real estate deal, this is where a company like ours comes into play. You as a passive investor, or limited partner, can invest along side us, with little to no investment experience, all without taking on any additional work, other than a bank wire and signing a few legal docs. Once that is complete, you receive monthly, or quarterly distributions on your cashflow. You also receive a K1 tax statement at the end of the year as an OWNER in the investment, rather than a 1099 like you would with your stock account or any sort of private money lending. All of this without having to guarantee a loan or worry about managing the investment. You are teaming up with a team of seasoned professionals who know how to navigate these more complicated deals and can essentially eliminate 90% of the risks of doing deals on your own. Now, we are not tax professionals, or financial advisors, we are not lawyers, but we are investors with over a decade of experience who invest along side of our limited partners in deals that we truly believe in!
DISCLAIMER: Investing involves risk, including loss of principal. Past performance does not guarantee or indicate future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. While the data we use from third parties is believed to be reliable, we cannot ensure the accuracy or completeness of data provided by investors or other third parties. Neither JSJ, Cardinal Capital Group, nor any of its affiliates provide tax advice and do not represent in any manner that the outcomes described herein will result in any particular tax consequence. Offers to sell, or solicitations of offers to buy, any security can only be made through official offering documents that contain important information about investment objectives, risks, fees and expenses. Prospective investors should consult with a tax or legal adviser before making any investment decision.