I have a friend who has a little 15 years of investing experience, and has some very sage advice for those of us who wish to follow in his footsteps. His name is Manuel. (This may or may not have been changed to protect his anonymity.) He is a very disciplined investor, buying and holding many single-family homes and smaller properties, and now prefers to invest in multifamily syndications.
Manuel had humble beginnings, having been in the military. Between him and his wife, a nurse, they had a $110,000 annual income as a family, and live in an agricultural area of California. They had been disciplined and lucky enough to live frugally, and saved about 70% of their income for many years, and invested that money wisely. Over the past decade, he has been able to amass significant family wealth and increase his net worth to over $10 million.
Manuel considers himself lucky that he was able to buy and flip houses between 2008 and 2012. He also invested in duplexes as rentals, and was able to amass over 30 doors. It was a meager beginning but created huge momentum over time. In 2014, he began putting money into syndications. In 2017, he began selling his duplexes and put those proceeds into other syndication investments.
Throughout all of his many investments over the years, Manuel adhered to some guiding principles that he feels other people could use as well.
So… What are the tips?
10% Rule – Never invest more that 10% of your net worth with any single syndicator, or investment for that matter. If a single syndicator has increased the original 10% to a 20% level, it is time to find a different syndicator to invest that extra 10% – or reevaluate the 90% of your net worth that is held captive in other investments. This is a great rule of thumb that protects you if an investment goes belly up. If that happens, only 10% of your net worth is at risk.
Stacking – When an investment matures, consider rolling all the profits back into a new investment. If a syndicator has proven themselves as an operator and has made money for you, this could indicate a green light to keep the money with them, especially if your net worth has also increased.
Invest the Proceeds, not the Principal. – Chances are that your initial investment was composed of funds that you had to work very hard for. This is not money that you want to put at high risk. In fact, you always want to mitigate all investment risks for this type of capital to an acceptable level – or don’t do it at all. When your principal has produced income, this can be put into higher-risk investments. Never put the principal at risk. Principal at this point should always be put into VERY LOW risk investments.
Use your cash flow to get aggressive. – This means that where you are cautious with your principal, you can be less so with proceeds of a previous investment. This does not mean that you can throw caution to the wind. Think of it as good stewardship of money that you had absolutely no energy invested into making. If you lose a little, you’re not going to feel as bad compared to if you lost money that you worked hard for. You are allowed to feel a little detached personally from your cash flow in order to make it work hard for you.
Quote
“I don’t want to be somebody that makes $100,000 a year and saves $20,000 and then put that $20,000 into the stock market. That for me is very nerve racking. But if I bought a property and it generated $2,000 a month, then I wouldn’t mind putting that $2,000 into the stock market. But I would never put that $20,000 into the stock market. Real estate investing keeps paying you as long as you buy for cash flow… the stock market doesn’t.”
Invest in real estate, not the stock market. – The stock market does not provide much cash flow when compared to real estate and multifamily syndications. As long as you buy or invest for cashflow, and you buy right, then it’s really irrelevant
Going Forward
I hope this helps you with your journey. You may not agree with some of these items, but I challenge you to create a similar list of guiding principles… And stick to them.