A Simple Plan for Creating Wealth
The fundamental principles of investing and saving for retirement are outdated and no longer work. People are living much longer, which means greater savings post-work will be needed. Interest rates have persistently declined for almost the last 40 years. Going forward they are expected to decline even further. Low rates fundamentally erode the premise of relying on stocks and bonds for a secure financial future. Yet for most people — even wealthier individuals — the way we invest for the future has not changed. But there is a better way. If you are not familiar with multifamily real estate I would encourage to learn why successful investors often refer to it as The Perfect Investment. If you already know about multifamily real estate, consider how strategically investing in this asset can secure your financial future in a way that stocks and bonds can not. Multifamily real estate can enable you to retire with a strong passive income and provide a path to generational wealth creation. Here’s how.
How to Get Started; A Simple Example
What changes can you make in the way you invest now that will great the biggest impact on your financial future? The first thing you can do is to commit to diversifying your financial holdings away from the low-to-no returns of bonds and away from the risk and uncertainty of equities (especially if this is concentrated in one sector like tech). Make a plan to build a portfolio of passive income producing investments in multifamily real estate. You can do this with an investment firm like OpenPath or other similar companies — just make sure you work with a reputable partner.
How much should you invest in real estate? A recent report revealed that high-net-worth families hold 28% of their assets in real estate investments. Based on my personal experience, I recommend allocating a third to half of your investable assets to real estate — assuming you are working with a reputable firm with a proven track record. Start by reallocating bonds and large single stock positions. Another more tangible way to plan for the right level of real estate you should hold is to think about the amount of take home income (after taxes and other deductions) that you currently enjoy. How much real estate would it take to generate that kind of income — even after you stopped working? To get a rough number start with this absolute number and divide it by 7%. (For example let’s say you needed $400K in take home income — again post tax and deductibles. In this case: $400,000 / .07 = $5,714,285. Assuming a 7% annual yield or income from real estate, which can be expected from a good firm, that’s how much you will need to own in order to generate $400K in annual income. That might seem like a big number but you don’t need to get there overnight. Better yet, you will find it possible to get there faster than you think. How? If you were able to invest $250K in each of four multifamily offerings each year for the next two and a half years you would find yourself at that point with take home income of ~$175K/year. Assuming for the next four to five years you were reinvesting this income and any capital gains (based on 2X multiple on equity over four to five years), you would find at that time your real estate investments generating ~$350K per year and now covering almost all of your current living expenses. At that time you may very well feel comfortable in leaving full-time work or at the very least scaling back knowing that if you were able to continue reinvesting all of the proceeds from you real estate, that in another few years you would be generating $700,000/year in take home income. In a relatively short period of 6–10 years you would have met and then greatly exceeded your annual income needs via passive investments in multifamily real estate. You will have completely secured your financial future and created generational wealth in the process.
In a relatively short period of 6–10 years you would have met and then greatly exceeded your annual income needs via passive investments in multifamily real estate.
The key is getting started sooner than later and allowing the gains to work in your favor. Of course, you don’t need to commit to $250K/offering. The point is to begin reallocating your assets now at whatever level makes sense for you based on your situation and goals and committing to building a multifamily real estate portfolio over the next few years. In a relatively short time you will be duly rewarded and even surprised by the level of financial security your portfolio now provides.
If you have questions on any of this or would like to get more specifics about how to leverage multifamily real estate to generate income and build family wealth., please feel free to reach out to me at any time. David at OpenPathInvestments dot com.
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Note: Note: I am a partner and investor with OpenPath Investments, a social impact real estate investment firm. OpenPath investment opportunities are for accredited investors. The numbers used in the above example are for illustrative purposes. Actual results from OpenPath real estate investments can vary. I am not a CPA or professional financial advisor. All opinions are my own.