How to Build Passive Income Streams in Multifamily Real Estate - The Snowball Effect
Updated: Aug 31, 2022
Investors look to multifamily real estate investments for passive income streams and long-term capital gains through appreciation. What investors often miss in their analysis of multifamily opportunities is the potential for their investment to snowball over time into a much larger investment through the redeployment of captive equity. Here is how it works.
In the example above, an investor made a $250K investment in a multifamily opportunity in Property A. Their first year cash-on-cash returns were 4% or $10K; not bad, right? But cash-on-cash returns from that investment continue to increase year-over-year as rents are driven higher through the market and through value-add improvements to the units, resulting in increased net operating income to be distributed to investors. The result is an increase by year 4 to a 6% annual return or $15K, increasing by year 7 to an 8% annual return or $20K. These returns alone are enough to drive investors to seek multifamily investments, but this is not the full story.
Also by year 4, there has been appreciation in the value of Property A which has built captive equity. By refinancing the property, Sequoia is able to access the accumulated captive equity and put it back to work for the investor as an additional investment in Property B, with its own cash-on-cash returns. And then again in year 7, there is an opportunity to refinance both Property A and Property B and redeploy that capital into an additional investment in Property C. And this snowball effect will continue on and on in future years, as captive equity continues to accumulate in these properties, and is deployed in additional properties. It is not uncommon for an investment in a single multifamily property to cascade over time into a substantial investment across a wide portfolio of multifamily properties.
In the example above, over a 10 year period, that initial $250K investment has snowballed for the investor into $360K of capital invested across 3 different properties, resulting in a 13% annual cash-on-cash return or $32.6K per year in passive income. Now those are the type of returns and growth that allow investors to build strong passive income streams and real generational wealth.
How can Sequoia help with multifamily real estate investments?
With over 35 years of experience, Sequoia Equities has extensive knowledge of the multifamily real estate market and its benefits for investors. At Sequoia, we know the importance of focusing on the individual needs of our investors. We are always ready to assist our clients with any questions they may have regarding opportunities and advantages of investing in multifamily real estate. Learn more about Sequoia by visiting https://www.elevatetosequoia.com/ or contacting us directly at BizDev@SequoiaEquities.com