Staying Out of The Fight- Why Apartments Are The Way to Diversify Your Portfolio

In a perfect world, investors receive a consistent, compounding return, with guaranteed payouts and growth- independent from emotions, world events, and minute unexpected events with real company value repercussions. Most investors go with the standard brick and mortar financial advisor route- Edward Jones or its counterparts. 

This route by no means is a wrong move- if you place money in bonds or blue-chip stocks, your money will most likely grow in the long game. This strategy is tried and true and has worked for millions of Americans. These financial professionals are tested and certified, and they are well-deserving of their positions.

The not-so-glamorous part about this method is that the advisors have no control over the roller coaster-like fluctuations of the stock market and modern bonds’ dismal returns.

These conditions leave many Americans asking, “How can I do better?”

Fortunately, there are plenty of options- higher-paying yet risker stocks, crypto trading, Forex, and various degrees of involvement in real estate investing. These alternative methods all work for somebody, but they take time to master, and few are willing to spend their most valuable resource- time. 

Single-family real estate is easy to acquire but can quickly turn into a handful to manage. Nobody wants to deal with toilets or tenants in multiple locations.  Fortunately, there are plenty of options- higher-paying yet risker stocks, crypto trading, Forex, and various degrees of involvement in real estate investing.

These alternative methods all work for somebody, but they take time to master, and few are willing to spend their most valuable resource- time.  Single-family real estate is easy to acquire but can quickly turn into a handful to manage. Nobody wants to deal with toilets or tenants in multiple locations.  Buying small multifamily is great, but it gets even better once the economy of scale is achieved.

The best part about large multifamily is making enough money to afford a professional management company so that investors may receive the returns they are seeking and knowing the property is in good hands while they go about their lives. 

The graph represents each of these categories described- the actual S&P 500 returns, the ideal 6% yearly compounding return, and a typical syndication return based on the S&P 500 average (6%), plus a 6% preferred return of 12% total (which many operators frequently better).

The S&P swings wildly but makes money in the long run. The ‘ideal’ return is a healthy and smooth curve up (as expected). The syndication return grows exponentially as the principal increases.

This simulation is based on a 6% preferred return and a 6% annualized return upon sale (this calculation factors in rolling over profit as well as the initial principal).

Each investor started with $100,000, but all three fared differently over the hypothetical investing period.

The stock market investor (marked in white) earned $167,131.52 over his initial investment (before fees and taxes). The ‘ideal return’ investor (marked in red) earned a respectable $260,347.55 on top of his initial investment.

Finally, the compounding return 5-deal cycle syndication investor (marked in blue) earned an incredible $634,002.00 on top of his initial $100,000 he placed with the company years ago.

Please note, this graph is a simulation for educational purposes only, but it does demonstrate why consistency matters. Which line do you want to be on?

To learn more about Kahuna Investments and our investing process, click here and we’ll start the conversation.