I built a financial model to determine how much cash a limited partner in a multifamily syndication deal would actually need to invest over five years to generate enough passive income to support a basic lifestyle.

Assumptions

Rate of Return: 2.0x over five years (doubling of investment)

Average Annual Cash on Cash Return: 6% ($6,000 for each $100,000 invested)

No reinvestment of annual cash flow ....because you'll probably spend it!

Minimum annual investment: $50,000

Annual cost of a basic lifestyle: $50,000

Only one round of reinvestment

Stage 1 - The Initial Investment

As you can see, the $50,000 minimum was invested five times over five years for a total of $250,000 invested. In year five, the first investment sold, returning a cumulative 2.0x multiple. Cash flow increased from $3,000 in the first year to $15,000 in year five.

Stage 2 - Reinvestment of Sales Proceeds

In this second phase, you can see the sales proceeds from the initial investments being reinvested into new deals in years 5 - 9. The annual cash flow from the reinvested proceeds is $5,280 in year five.

Stage 3 - Combination

In the final stage, we combine annual year five cash flows of $15,000 from the original investments and $5,280 from the first reinvestment to arrive at $20,280.

Based on the general cost of goods, $20,280 is likely not enough for a basic lifestyle and will not allow you to leave a W2 job.

So how much would you need to actually invest to reach a basic lifestyle assuming $50,000 per year in living expenses by year five?

Easy....by using the "goal seek" function in Microsoft Excel, we can set our year 5 cash flow to $50,000 and ask the model to calculate how much needs to be invested each year to reach that target.

The answer we arrive at is $123,274. This is the amount you will need to invest in multifamily syndication deals each year for five years to be able to leave your W2 job based on the assumptions made in this analysis.

...and this makes sense. You will have invested ~$616,000 over the five years and also have sales proceeds of ~$217,000 from the first deal going full-cycle. Combined, that is $833,000, which should translate to ~$50,000 of annual passive income at a 6% cash on cash return rate.

Of course, it is entirely possible that you can reach this goal with a much lower amount of cash and time if your return rate is higher or the deal goes full-cycle quicker. In fact, most of the multifamily syndication deals I've seen have provided investors an exit with return rates that doubled or tripled the projections.

Or, it could take you longer to reach the goal if your return rate is lower or the deal takes longer to go full-cycle. Either way, investing the most you possibly can will ensure you reach the goal in the quickest amount of time.

Final Thoughts

It is entirely possible to generate enough passive income to leave a W2 job within 5 years through investment in multifamily syndication deals. Furthermore, based on the assumptions made in this article, it will take an investment of ~$123,000 per year to accomplish this goal.

Phoenix, Arizona

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