Go Big with Gib Podcast
Go Big with Gib is a podcast for professionals, business owners and entrepreneurs to talk about their big wins.
Go Big with Gib Podcast
Ep. 60 Enhancing Your Real Estate Strategy
Cash flow isn’t the key to financial independence in real estate; instead, total returns and strategic investments should be the focus. Gibb Irons explores different asset classes and emphasizes the importance of capital preservation and understanding true returns for sustainable wealth.
• Discussion on why cash flow is overrated
• Importance of total returns in real estate investing
• Analysis of cash on cash returns from different asset classes
• Emphasis on capital preservation and risk mitigation
• Advantages of tax benefits in real estate investments
• Benefits for passive investors and limited partners
• Alternatives for generating cash flow beyond real estate
• Long-term investing strategies for financial freedom
• Insights on maintaining lifestyle while building wealth
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Cash flow is overrated. Welcome to the Go Big with Gibb podcast, where we talk to professionals, business owners and entrepreneurs about their big wins. Hey, my name is Gibb Irons and welcome to this episode of the Go Big with Gibb podcast. So today I want to talk to you about why cash flow is overrated. In a real estate syndication, for example, a typical multifamily real estate investment is going to produce a 5% to 7% cash on cash return. So let's talk that through a little bit. Let's assume that you invest $100,000 in a real estate syndication and that it produces a 6% cash on cash return. So that's $6,000 per year or $500 per month. Now, don't get me wrong. It's nice to have an additional $500 per month, but that really isn't going to move the needle for most people. It is certainly not going to replace your income if you're a high income earner. Now let's take an example of somebody that earns $300,000 per year. So if you earn $300,000 per year and your goal is income replacement, then you need to generate $25,000 per month. To generate $300,000 in cash flow at a 6% annual return, you have to invest approximately $5 million. So that's a lot of money and it's out of reach for some folks. That's why I recommend some other asset classes, like medical real estate, for example. Our medical real estate fund is paying out 8% to 10% cash on cash. Just that difference, going from 5% to 6% up to 8% to 10% it makes a huge difference. And let's talk that through Again if you want to generate $300,000 in cash flow but you're doing that at a 10% annual return, then you would only need to invest $3 million as opposed to $5 million. So that definitely is a much better scenario. Now you might ask me, if cash flow isn't my primary focus in real estate syndications, what is? And honestly, I'm looking more at the total return. So I'm looking at a couple of different metrics. Number one I'm looking at the internal rate of return and I'm also looking at the equity multiple. I want an internal rate of return somewhere between 18% and 20% and, as far as an equity multiple goes, I want to be able to double my money in five years. If I invest $100,000, I'm looking for a total return of $200,000. This episode of Go Big with Gibb is brought to you by Irons Equity. At Irons Equity, we specialize in helping investors like you create long-term generational wealth and save money on taxes through recession-resistant real estate investments that create passive income for you and your family. If you want to secure your financial future, go to investwithgibcom to schedule a 30-minute introductory meeting with me, gib Irons Again, that's investwithgibcom.
Speaker 1:Other really big keys to why I love real estate investing whether it's medical, real estate, multifamily or otherwise is just capital preservation. I like to invest in conservative asset classes where the chance of me losing my initial investment is very, very low, and in real estate the most common way to lose your money is if the property goes into foreclosure. That's always a possibility, but there's tons of ways to hedge against that and it's unlikely to occur. If you buy at a good price and you have good leverage, you can tell at the very beginning what the likelihood is of the deal going upside down. So if you've got a good debt structure and you don't have too high loan to cost, you can really make sure that you're going to preserve your initial capital.
Speaker 1:Another thing that I love about real estate investing is the tax advantaged investment. You know, with real estate we get depreciation and so we have tax advantaged returns. We're not actually paying tax on all of our returns. We're only paying tax after we've exhausted all of the depreciation. Real estate is also a great hedge against inflation. As inflation rises, rents also go up, so this is a very safe investment in an inflationary market. Another thing that I really love about real estate investing is that the LP investor has absolutely no responsibility for carrying out the business plan. That means that they're totally passive and they can focus on other things.
Speaker 1:If I were to invest purely for cash flow, I like to look at investing in businesses. Investing in businesses is a great way to generate cash flow. Other things that I like to look at I've talked in the past about short-term rentals. Short-term rental properties, if you're willing to get them set up and running, are great ways to generate cash flow. So, just in summary, real estate syndications generate cash flow, but you need to understand that it's not going to be just one investment that sets you off to financial freedom.
Speaker 1:It's going to take a long period of time, through disciplined investing, in order to replace your income, and, for somebody like me, I don't want to have to live an inferior lifestyle when I retire. I want to be able to continue to live the same or better lifestyle upon retirement. So, as I look at my financial future, I'm not looking to reduce my standard of living to where I'm living off of 50% of what I'm currently living off. So those are some really important considerations. If you want to generate cash flow through real estate syndication, just understand it's going to take a lot of investments over a long period of time and we're talking about setting aside millions of dollars. That said, it can be a great way to generate passive income. I've really enjoyed getting those payments into my bank account every month, so I hope that is super helpful to you and I look forward to seeing you next time. Thank you for listening to this episode of Go Big with Gibb. If you haven't already, go follow us on social media at Gibb Irons. We'll see you next time.