There are three ways to get paid on a multifamily transaction.
After you’ve invested in a multifamily property, you’ll want to know where you’re going to make your money.
If you were to be operating in the single-family home business, you’d expect to either make profits from your cash flow or from selling on the property you have renovated.
In the multifamily mindset, there are three main ways to get paid and they are all far more lucrative and profitable than the single-family mindset.
Acquisition fees are the first way we get paid in the multifamily real estate and is the payment we get as soon as a deal closes.
As an operator, you’d usually get paid an acquisition fee for finding and structuring the deal, putting it all together, and overseeing it.
And you’d expect to be paid between 3% to 5% of the purchase price of the deal for your part in the transaction. But by moving a few numbers around and overseeing the transaction we can move that number up to around 4% or 5%.
Depending on the size of the transaction you’re facilitating, an acquisition fee can make you quite a lot of money. For example, we participated in a 40 unit sale north of Charlotte in North Carolina, which cost $1.1 million. With a 4% acquisition fee on that, we made 44,000 dollars.
But that’s peanuts and we’ve had acquisition fees totaling $1.8 million in the past.
A pretty lucrative way to make money, no?
There are two different types of cash flow.
The first is passive income. This is typically gaining income from something where you’re not at a job every day of the week. For example, you can be an asset manager, taking cash from an appreciating asset, or collecting rental income from a multifamily property.
Active income is the opposite. People with an active income are those usually working a classic 9-5 job and if they aren’t fulfilling their hours or cannot work for whatever reason, then they won’t be getting paid.
The multifamily mindset can give you the freedom and flexibility to earn a more than comfortable living, while either not having to work a full-time job, or even giving you the flexibility to just work on the side, as and when you want.
Investing in multifamily real estate will also give you the freedom and flexibility to spend time with your family, go on holiday, or even just take up a new hobby.
You can make a ton of money as an accountant or lawyer, and you might feel secure in your job. But one day you could from nowhere be made redundant.
How many people have lost their jobs because of the coronavirus pandemic? Millions.
And unless they’ve found a new job pretty quickly, a lot of these people will, unfortunately, struggle to pay their bills and support their families.
With the multifamily mindset, you won’t have this job insecurity.
Sure there is a greater risk involved when you buy into a multifamily property, but so long as you know you can turn a profit through your investments and can keep your properties occupied, you will continue to make money, without the need for a nine to five job.
Plus you’ll be your own boss, and the harder you work and invest in more properties, the greater your cumulative cash flow income will be.
This is where we get the big checks.
Working a 9 to 5 job and living from paycheck to paycheck isn’t a great lifestyle to have.
Trying to save and support your family with this lifestyle is particularly difficult.
With education fees for your kids, hospital bills for your parents, and bills to pay on top of that, you’ll barely see any of your paycheck sitting in your account before it leaves again.
And pulling in a big check from an equity payout on your multifamily investment would never go amiss, would it?
Equity payments are the biggest way you can make money in multifamily real estate, we’re talking figures in excess of $100,000. This will easily pay off those medical bills or education subsidies for your kids.
Why don’t we flip single-family homes anymore?
Simply put multifamily properties are just way more lucrative.
As well as the increased wealth that comes with it, the multifamily strategy comes with a heap of non-monetary advantages that can improve your lifestyle.
When we talk about active and passive income, active income will restrict your lifestyle a lot, allowing you less time to spend with your family, and can force you to live paycheck to paycheck.
Plus in single family real estate, you can flip 15 to 20 different properties, and still only make the same amount as you might on one multifamily property. Constantly having to purchase new properties, gut them, and refurb them makes it an active income arrangement, and if you’re not flipping houses, then you’re not making money.
Dissimilarly, you can hold a multifamily property for up to around 7 years, have passive income coming in every month, and receive a large equity payout when you’re ready to sell the property on.
Think about the long game and think about the lifestyle you want to have when deciding if the multifamily strategy is right for you.