Welcome back! I just wanted to let everyone know that we are in the beginning stages of rebranding, and will be coming out with a website soon so keep your eyes peeled for everything that will be entailing! There will be all of the previous newsletters on the website, plus a ton of bonus content and educational resources to make you the most educated investor you can possibly be. What is the Best Investment? The Stock Market or Real Estate? The future of the stock market just isn’t as stable as it once was. Thousands of people are wondering how they can possibly plan for their financial future with the uncertainty and volatility of the stock market. There is an alternative answer to the stock market and will bring you better and faster returns than ever before. Stock Market Returns Will Surprise You The average stock market return over the last 15 years was 7.04% from 2005 to 2019 and 9.06% over the last 30 years from 1990 to 2019 That means that if you invested $100,000 in 2004 it would be worth $277,454 in 2018, which doesn’t seem that bad, but there’s more to calculate. Market Volatility Most investors don’t realize that the same $100,000 isn’t actually worth $277,454 fifteen years later, because of the volatility of the stock market year after year. Actually, that same $100,000 is actually worth $225,425, which is only a 5.6% return compounded annually. Not nearly as good but not too bad, until you realize that these returns are before brokerage fees! Fee'd to Death The average expense ratio for actively managed mutual funds is between .5% and 1% and can go as high as 2.5% or more. For passive index funds (ETFs), the typical ratio is .2%. Most investors have a blended portfolio of ETFs and mutual funds, so let’s assume the average fee is 1% per year. After taking out a 1% fee each year, instead of being worth $225,425, your $100K, invested fifteen years ago, is now only worth $193,879. That’s only a 4.5% annually compounded return! Taxes Let’s not forget taxes! If you’re filing jointly and making more than $77,201, your long term capital gains rate is 15%. If you sold your entire portfolio, the taxes you’d have to pay would push your average annual return from 4.5% to 4.0%. Inflation – The Silent Killer According to the Federal Reserve website, the annual inflation target is 2%. In fact, the Federal Reserve has done a good job meeting their stated objective by achieving an actual inflation rate of 1.6% over the past ten years. Of course, inflation silently erodes the buying power of your portfolio. Compounded over fifteen years, an inflation rate of 1.6% reduces your after tax return from 4.0% to 2.5%. Wow. What does this mean? All of this means that if you invested $100,000 in 2004, your actual return, i.e. the kind of return you can actually BUY something with in 2018 dollars after you pay brokerage fees and taxes is a mere 2.5% compounded per year. More specifically, after getting your initial investment back, you have $44,382 in net gains after fifteen years. I’m not sure if you thought about investing in the stock market that way, but it makes me angry, and maybe it makes you angry too. Here you manage to save and invest $100,000 and patiently keep it invested for a LONG time. And when it’s time to sell, for example to pay for your kids’ college education, you’ve actually made very little money while paying your broker and the government along the way. Oh, and in the meantime, your purchasing power went down due to inflation! There just has to be a better way to create wealth from an investment. Multifamily Syndication Multifamily syndication is 100% the best and most ideal investment you can make with your capital. Multifamily syndication is where a group of people pool their resources together in order to purchase a multifamily property, such as an apartment building or mobile home park, which would otherwise be difficult or impossible to achieve on their own. This typically involves general partners who organize and oversee the syndication, which includes things like securing financing, managing the property, due diligence on the property, and handling investor relations. Then there are the limited partners or passive investors, which is you! In return for your investment, the limited partners receive an equity share in the syndication along with cashflow distributions and profits. Benefits of Multifamily Syndication There are five main advantages of passively investing in multifamily syndications over any other investment. - Below-Average Risk - Above Average Returns - Passive Income - Outstanding Tax Benefits - Inflation Hedge Below Average Risk Perhaps the greatest advantage of investing in Multifamily syndications is its extremely low risk profile. For decades, the multifamily market has proven much less volatile than residential real estate, the stock market, and cryptocurrency! When the housing market crashed in 2008, the delinquency rates on Freddie Mac single-family loans soared, hitting 4% in 2010. On the contrary, delinquency on multifamily loans peaked at .4%. So, if you’re looking for a recession-proof way to invest your money, there is no better option than multifamily syndication investing. Above-Average Returns As we’ve seen, the average stock market return over the last 15 years was 7.04% but after fees, inflation, and taxes, that return becomes a measly 2.5%. On the other hand, multifamily syndications routinely return average annual returns of 12% and above. That’s compounded and after fees, inflation, and yes, even taxes. Passive Income Unlike stocks and bonds, multifamily syndications generate cashflow for its investors from the income generated by the property. The cashflow afforded by multifamily investing generates the kind of passive income that leads to financial freedom. The magnificent part is that the multifamily asset itself is appreciating in value over time and can be usually sold for a significant profit. The combination of passive income and appreciation lends itself to the kind of generational wealth that you can happily pass on to your children! Outstanding Tax Benefits Real estate has advantages over nearly every other investment, from stocks and bonds to business investments to precious metals. The IRS allows multifamily investors to write off 3.6% of the value of the building each year as an expense through what the government calls “depreciation”. This is only a phantom expense, meaning it doesn’t actually cost you anything, but it does reduce your taxable income. The reason for this is simple, the U.S. government wants people to invest in real estate; it’s actually a tax incentive, and it’s required by law. Let’s illustrate the beauty of depreciation in this example. Let’s say you invest $100K in a multifamily syndication and make 12% cash-on-cash return (or $12,000) in a particular year. It appears that you should be paying taxes on your $12,000 gain, but that’s without the magic of depreciation. Purchase Price - $500,000 Down Payment (20%) - $100,000 Debt - $400,000 Cash on Cash Return % - 12% Cash on Cash Return $ - $12,000 Tax Depreciation % - 3.6% Tax Depreciation $ - $18,000 Taxable Loss - $6,000 The main thing to note here is that the $12,000 you put into your pocket is entirely tax free. Instead of showing a taxable income, your tax return shows a taxable loss. Simply astounding! You can even “carry forward” your “loss” to future years, or you can use it to offset gains from other passive income, further reducing (or even eliminating) taxes in the future! Can your stocks do this?? Depreciation is a benefit of ALL real estate investments, but multifamily gives you an additional tax bonus rightfully called “bonus depreciation”. Passed by President Trump, bonus depreciation allows us to deduct the entire value of the investment from our taxable income in the first year, instead of previously waiting the 27 ½ years to space it out. This produces a GIGANTIC tax loss that we can carry forward and apply to other passive income, which will once again reduce or eliminate our taxes paid on any gain. Quite literally, no other investment in the world offers such astounding tax benefits. Inflation Hedge Multifamily investments are a fantastic hedge against inflation. If you recall, the Federal Reserve’s inflation target is 2% each year, which means everything goes up in costs, including rents. As income goes up, so does the value of the property. Now, also so does the expenses, but that doesn’t mean the net operating income will remain the same. Let’s take a look at this example and watch what happens to the net operating income. Inflation Rate: Year 1 - 2% | Year 2 - 2% | Year 3 - 2% | Year 4 - 2% | Year 5 - 2% Income: $10,000 Purchase | Year 1 - $10,200 | Year 2 - $10,404 | Year 3 - $10,612 | Year 4 - $10,824 | Year 5 - $11,041 -Expenses: $7,667 | Year 1 - $7,820 | Year 2 - $7,976 | Year 3 - $8,136 | Year 4 - $8,298 | Year 5 - $8,464 =Net Operating Income: $2,334 | Year 1 - $2,380 | Year 2 - $2,428 | Year 3 - $2,476 | Year 4 - $2,526 | Year 5 - $2,576 The NOI is actually going up! And the higher the NOI, the higher the value of the property. In fact, that small 2% inflation rate results in a 10% average annual return on the cash invested in a typical multifamily syndication. It’s truly incredible, the more inflation goes up, the more your investment appreciates. It’s the perfect inflation hedge! Conclusion Most investors invest their hard-earned money in the stock market. It’s not their fault, because that’s what 99% of financial advisors advise their clients to do! But as we’ve seen, there is a better way that’s much more lucrative and rewarding, and practically recession proof! I just wish I could tell everyone about this opportunity! Twice the Advice: This month's advice will actually be coming out a little later in the month and will be a video of me explaining the details of how to analyze a multifamily deal! Opportunities: We are currently looking at two potential properties in Mobile County and they could be huge returns for you guys, so there will definitely be more information to come on that in the following weeks! Market Analysis: - Lafayette Land Company announced more work last week on the St. Louis Street Place project, which is moving along as planned. Essentially, they are in phase two of the ambitious build-out that will eventually touch all four corners of the intersection of St. Louis and Jackson streets in Downtown Mobile’s bustling Central Business District. - First announced roughly a year ago to great fanfare, phase one involved breaking ground on a new grocery store called Greer’s Fresh at 260 St. Louis St. It is currently being built-out by the 104-year-old, generationally owned grocery chain. - The retailer will have a fully renovated 1936-era parking lot situated adjacent to the site. - Heralded last July by Mayor Sandy Stimpson at a groundbreaking as one of downtown’s “tipping points,” the project is anticipated to assist with residential revitalization in the area, similar in significance to the Meridian at the Port apartment complex, which is located a quick Gotcha ride east on Water Street. - When fully realized, St. Louis Place is expected to be a 39-unit luxury apartment and mixed-use space. It is located at 300 St. Louis St., directly across the street from Greer’s Fresh. The five-story footprint will have one-, two- and three-bedroom, upscale apartments ranging in size from 1,000 square feet to 3,350 square feet. - Spaces will feature extra-tall ceilings, designer appliances, oversized doors and balconies for each unit, a 12-by-16-foot arcade over the sidewalk in front of 8,000 square feet of retail and secure on-site parking. - The complex is also anticipated to contain an upscale athletic club with an indoor lap pool, a high-end restaurant, a cocktail lounge and several other retail outlets. The fully secure and private complex will have a dog grooming station, package delivery, club area and other amenities. - Expectations are for Greer’s Fresh to open this spring and the apartments to open in Spring 2021. - Lafayette Land Co. also has available the Class A office building at 301 St. Louis, located on the corner of Jackson Street. The property is a two-story, circa-1860 warehouse that has been restored into a 9,000-square-foot office building site, with connected parking. It will be available for occupancy starting this summer. - Some 32,000 square feet inside the 90,000-square-foot former Kmart retail site, located at 5405 Hwy. 90 inside the Cloverleaf Plaza Shopping Center in West Mobile, has recently been leased by a Ridgeland, Miss.-based Club4Fitness health facility. This will be their fourth location to open in the area. - The Eastern Shore Metropolitan Planning Organization (ESMPO) approved a resolution, endorsing the scope of a new, scaled-back proposal for an Interstate 10 bridge and expressway over Mobile River and Mobile Bay. - The $1.22 billion plan is 42-percent less expensive than a proposal ESMPO defeated last August, when it voted to omit the Alabama Department of Transportation’s (ALDOT) $2.1 billion proposal from its Transportation Improvement Plan (TIP). - Notably, the new plan is envisioned as being funded by a combination of state and federal sources, both one-time allocations and recurring funding, “with the hope” that no tolling will be needed. Further, it preserves the perpetual availability of toll-free “legacy routes” across the existing Bayway and Causeway. ALDOT, which represented the lone vote against the resolution at the meeting, would have to approve the plan before additional details could be explored. - The previous proposal included a new eight-lane bridge with 215-feet of clearance over the river, connected to a new, 7.5-mile span across Mobile Bay at an elevation higher than the 100-year storm surge level, with multiple access points. In that case, ALDOT and Gov. Kay Ivey approved a funding scheme that would have levied a $6 toll each way for average commuters. - The new plan preserves the bridge design, but reduces the number of lanes to six and limits access to one ramp on each side of the bay. Further, rather than a new span across the bay, four new expressway lanes, two on each side, would be built between the two existing interstate spans, eliminating the need for additional environmental impact studies and substantial engineering, according to the resolution. - The new plan calls for “express lanes” to be added to the existing Mobile Bay span, while the Mobile River bridge would be reduced from eight lanes to six. There will only be two access point, with exits along the Causeway and at Highway 90 in Daphne. - Speculation long swirling around future use of an L-shaped plot of property located in Midtown, next door (and behind) Mobile’s landmark Dew Drop Inn on Old Shell Road, finally spilled over into reality. - Lewis Golden, commercial broker with Hamilton & Company, planted a sign on site to announce his company’s plans to help fill out a new 8,250-square-foot, mixed-use, multimillion-dollar project called The Shoppes at Midtown. Plans in place are for the site to break ground sometime this year. - “The Shoppes at Midtown is a mixed-use development the includes ground-floor retail and restaurant space with two floors of upscale lofts above,” Golden said. “The project will be pedestrian-oriented with the goal of contributing to the established businesses in the immediate area.” This concludes our newsletter of the month. Don't forget about Twice the Advice coming out later this month and stay on the lookout for our new website! If anyone would like more information on anything I've harped on today, then please don't be afraid to contact me. I'd love to help anyone willing to learn! To your success!
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