Replacing Your W2 Job with Multifamily Investing - a Myth?
It’s the dream of many hard-working men and women to leave their full-time job and replace their income with money earned from passive investing and syndicating multifamily properties. For many successful syndicators, it’s a lot more than a dream. In fact, many of today’s syndicators started while working a full-time job and filing their W2s every April.
So, how did some of them persevere and become successful as syndicators, while others haven’t been able to do so? How were some able to say goodbye to their W2 jobs once and for all? It took discipline, along with tremendous dedication and commitment to be able to do justice to their W2 jobs while starting a syndication business. It took time to slowly move away from their 9 to 5 mentality and go forward 100% into syndicating multifamily properties.
Nobody ever said it would be easy to give up your job and live off income earned as a syndicator! The problem is, if you split your time between a full-time job and syndication, you may be successful, but it’s going to take time, and you’ll grow slowly. The key is to shorten the timeframe and move forward quickly. Here’s something else to consider: splitting your time may make your job performance suffer, as well as you ability to do justice to your fledgling syndication business.
Let’s look at some steps you can take that will help move things along and help you realize your goal:
Step 1: Make the Commitment
Before you do anything else, you have to make the commitment to yourself and potentially others that you are taking the steps needed to give up your full-time job and go 100% into becoming a syndicator of multifamily properties. Without that commitment, everything else is moot.
You’ll need to develop a business plan and a timetable to show what dates and milestones are required to execute the plan. This gives you a roadmap for your journey to becoming a full-time syndicator.
Step #2: Build a Team
Having a full-time job will diminish your availability to handle all the responsibilities that go into syndicating multifamily properties. There’s simply no way around this. But you can do a workaround by building a team and having them in place to help you get things done, and it doesn’t have to be expensive.
Your team should consist of people with experience in marketing, administration, underwriting and other key areas, because even if you didn’t have a full-time job, you wouldn’t be able to do those tasks and find time to vet any deals that are presented to you. You also may want to add a broker to your team, as they are an excellent source of finding available properties, particularly if you plan to invest in out-of-state markets.
As for a limited budget, you can get highly qualified people at Upwork and Guru.com. Both are websites where registered freelance talents can see your job posting and bid on the job, irrespective of the budget or the date that the job is due. Freelancers can bid the job either by the hour or by the project, and if it’s bid by the hour, Upwork will install a clock/timer on the freelancer’s computer and send screenshots to the person who posted the job, to ensure that the work is being completed within the amount of time being billed.
One of the ways to reach potential investors is through podcasts. There are overseas’ administrative assistants who can book you on podcasts and schedule general meetings, for under $10 per hour. Just advertise for this specific task on Upwork. You can also find underwriters available between $20 and $50 per hour, also available on Upwork.
Step #3: Lay out the Different Responsibilities
Once you’re comfortable with your team players, you can assign tasks that keep the process moving forward, freeing up your time to wind down your job and start moving toward being a full-time syndicator of multifamily properties. Having a timetable with verifiable dates to guide you will make the process easier.
For example, you can assign the marketing person to begin developing a social media plan, or you can have the underwriter begin to evaluate the credit quality of a property you’re considering syndicating. You can also have your administrative assistant begin creating files and lists of potential investors that you’ve talked with.
Step #4: Define Your Responsibilities
One of the biggest roles in the process is the role that you’ll play. Will you be raising capital from passive investors? Or will you focus on sourcing and underwriting deals? You have to know your strengths and weaknesses and make the most of what you bring to the table.
If you’re the one who will be raising capital, plan to speak at meetups or other gatherings where potential investors go to meet syndicators and explore building key relationships. You may have a core group of potential investors including friends and family members, but you’ll want to always be looking to expand your group and bring in new investors.
If you have results from recent multifamily investments, bring them along to share. Have handouts prepared in advance with important stats and numbers, including projected returns and actual returns. Those are extremely important to potential investors.
One of the keys is to define your investment approach, because potential investors are going to want to know if you’re a good fit with their own investment approach. Some investors look for high returns and are not concerned with the risks it takes to obtain them. Other investors are more interested in a lower risk and would be willing to accept a lower return.
If a potential investor told me that they were a high risk taker and wanted to double their investment in a short period of time, I’d tell them to look elsewhere, as we wouldn’t be a good fit. It always pays to share your investment approach up front so you can be sure that you’re both on the same page.
It also pays to share a previous PPM (Private Placement Memorandum) with potential investors, as it provides them with a summary of your objectives and the risks involved. You’ll want to discuss the types of properties that you like to invest in. I prefer value-add properties, while other syndicators prefer core and core-plus deals. The more you can share about your investment strategies, the better relationship you will have with your potential investors.
Building a core of potential investors before you have a multifamily deal to share is extremely important to your success.
If you decide that you want to be responsible for sourcing deals, start building your network. You’ll need to build relationships with real estate brokers, as well as begin to build relationships with multifamily property owners. It’s also important to have working relationships with other syndicators, because they can be a good source of potential multifamily properties. Some deals won’t appeal to each syndicator, so if they decide to pass on a particular deal, they can share that information with you.
Step #5: Manage your Team
Once you’ve put your team together, let them do their jobs. At some point you’ll realize that you simply can’t do everything yourself. Manage the work that they do, guiding them to do things the way you would like them done.
Reevaluate how things are going from time to time to ensure that you have the right team in place and that you’re accomplishing your goals. If not, replace the people in the areas that aren’t performing to the standards you’ve established.
What if You Want to Replace Your W2 Job and Become a Passive Investor?
Some people want to replace their W2 job with real estate by having a passive stream of income; meaning, they don’t want to become syndicators, but prefer instead to be passive investors. I know several investors who were able to do so. Their full time “job” is to meet and vet syndicators, go over investment offerings, and invest passively. It took them years to have enough passive income to cover for their W2 job, and they started investing while they were still employed.
How much time does it take? Let’s look at a common investment example. Let’s say you saved up and invested $100,000 in a multifamily property that generated 8% cash-on-cash and 15% IRR, over 5 years. During those 5 years, you saved up the income, which was around $50,000. Now, let’s assume that after 5 years the property is sold and your profit from the sale is another $50,000. Together with your original $100,000, you now have $200,000. If you invest it, you can have $400,000 several years down the line, and you can allocate it between 4 different deals. Now, the goal is to invest in multiple investments, each that will generate enough cash flow, so you can use some of the income and reinvest the rest. Yes, it does take time. And when you get your yearly bonus – invest it as well. And repeat it as much as you can.
It can take you 5, 7, or 10 years to replace your income. There’s no magic here. The more you invest – the faster you can replace your job.
Giving up your 9 to 5 job to become a multifamily real estate syndicator is possible, and it’s not a myth. Many have successfully transitioned from the W2 world to working with passive investors and earning a substantial income. It all starts with your commitment - if you really want to do this, you have to be committed to doing the work that it takes. Develop your business plan and a timetable so you’ll know if you’re executing your plan on schedule. Build a team to help execute your plan, as you can’t do everything yourself. To do this inexpensively, use online sources like Upwork and Guru.com. Define the team’s responsibilities, and then define your own. Do you want to secure investors, or source properties? You can outsource other responsibilities, like hiring people to book you on podcasts, for example, or underwriters for hourly fees that run from $20-$50 per hour, again using Upwork, for example. Once you have all the people in place, manage your team, and continually reevaluate how everything is going so you’ll know if everyone is working to the standards you’ve established, or if adjustments need to be made. Finally, be sure you want to become a syndicator. Some people give up their W2 jobs and become full-time passive investors. It all depends on how you want to manage your time and your money.
Want to Invest with Ellie?
If you are interested in learning more about passively investing in apartment buildings, click here to schedule a call with Ellie Perlman.
Want to Become a Syndicator Yourself?
It’s one thing to start a business, and an entirely different challenge to make it truly sustainable. If you are interested in building out your own multifamily syndication business, and scaling it, click here to learn about Ellie’s mentoring program.
About the Author
Ellie is the founder of Blue Lake Capital, a real estate company specialized in multifamily investing throughout the United States. At Blue Lake Capital, Ellie helps investors grow their wealth and achieve double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.
Ellie is the host of REady2Scale , a podcast that focuses on the "APS" of real estate: Asset, Process, and Strategy. Each episode discusses how investors can scale their real estate portfolio and/or businesses.
She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.
Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.