Scaling your passive income streams is one of the absolute best ways to build wealth. However, despite the fact that growing passive income streams can be tremendously beneficial for increasing your wealth, many people struggle to scale their passive income streams successfully.
In this blog, I am going to break down exactly how you can scale your passive income like a boss. After reading this blog, you should be able to start taking action to increase your cash flow and start reaching the higher levels of wealth that you deserve.
So, here is how to scale your passive income like an absolute boss:
Step #1 Get Your Numbers Right
Understanding all of the numbers is critical. The first number that you really need to be aware of is how much money you have available to invest. You cannot start investing if you don’t know exactly what you can afford to spend on investments. So, go through all of your accounts and figure out exactly how much money you have available to start investing in real estate.
The second number you need to be aware of is what the equity multiples are for the potential investments you are looking at. Equity multiples are metrics that calculate the expected return on initial investment over a period of time. So, for example, if you have $1 million to invest, you should be aware of what your investment will be worth in five years, how long it will take to double to $2 million, etc.
You should also know when you want to retire and what it is going to take in terms of passive income to retire. So, for example, you might want to retire in ten years, and you might need to have a passive income of $250,000 per year to retire and maintain your lifestyle. The more that you understand all of the important numbers associated with your current financial situation, and where you are trying to get to in terms of cash flow, the better.
Step #2 Choose your Strategy: SFHs, Small MF, Syndication, or a Combo
If you are going to start investing in real estate for passive income, you are going to have to choose between a number of different types of real estate investments. So, for example, you will have to choose between single-family homes, small multifamily properties, multifamily syndication, or a combination of any of these.
If you invest in a single-family home, or a small multifamily property with 2 units, 4 units, etc., then you will have to manage it yourself. However, if you invest with a multifamily syndicate, such as my company, Blue Lake Capital, then it is truly 100 percent passive, and it will be managed for you.
There is not necessarily a right or a wrong strategy for real estate investing. You can scale passive income investing in single-family homes, multifamily properties, and real estate syndication. The strategy that you should go with depends on what is right for you.
Step #3: Educate Yourself
After you have made the choice about which type of real estate investing you would like to do, your next job is to educate yourself as much as you can about that type of investing. This can involve reading articles about the topic, listening to podcasts, watching YouTube videos, etc. There is an abundance of helpful material on the internet that you can use to your advantage to become more knowledgeable about real estate investing.
If you are going to go with real estate syndication, then you also need to get educated on the sponsor. You should thoroughly read their website, listen to their podcast, Google them, ask to speak with the team, and with current investors. After all, you will be trusting the sponsor with your money, so you really need to make sure that the sponsor is trustworthy, knows what they are doing, and has an outstanding track record of success.
You should not move forward with a particular sponsor unless you are 100 percent confident that they will handle your money with care and invest it soundly. One thing you should ask your sponsor is whether or not they invest in their deals. You want to know why or why not. You should also ask them what challenges they have had and how they handled it. Further, you should ask them if they pay “pref” and how they have performed throughout COVID.
Step #4 Start Investing and Keep Track of Returns
After you have completed the first three steps, it’s time to start investing. However, you should not just start investing and then forget about your investments. Instead, you should keep close track every single month of how much money is hitting your account. Just make a very simple cash-on-cash calculation to see what the cash income earned is vs. the cash income invested.
You also need to make sure that the pref and projected cash-on-cash were paid correctly at every 12-month interval. If you need assistance keeping track of your passive income, you can use my passive income tracker. This tool is extremely helpful for helping you to have 100 percent clarity over your investments and passive income.
For example, if your real estate syndication sponsor told you that you could expect an 8 percent ROI in year 1, and if you only ended up getting a 7 percent ROI in year 1, then make sure that they explain why this happened. If the projections were not hit, you need to be aware of this and monitor the continued returns closely.
My recommendation is to keep the cash-on-cash during the hold period in an investing account and reinvest it along with the sale proceeds. The more that you invest, the faster you build out sustainable passive income streams.
Step #5 Transition When you Reach Your Cash Flow Goal; Keep Vetting Deals and Sponsors and Grow Your Wealth
The more passive income that you build, the more that you will be able to depend on real estate investing for your primary income. Eventually, you might be able to retire or at least quit your day job and focus on real estate investing as your primary income.
As your passive income builds, you can travel more, spend more time with your family, and enjoy the good things in life. You can start out with taking longer vacations. So, for example, maybe you take five weeks off per year instead of three, etc. The goal is to become completely financially free to the point where you can have an extraordinary lifestyle without having to work if you don’t want to.
But, if you do feel like working, at least a little bit, you can keep analyzing real estate investment opportunities as they come up. You can just keep reinvesting your returns every year until your cash flow becomes enormous. This is how many real estate investors become extremely wealthy. If they can do it, so can you!
Want to Invest with Ellie Perlman and Blue Lake Capital?
If you are interested in learning more about passively investing in multifamily properties, click here to schedule a call with the Blue Lake Capital Team.
About the Author
Ellie is the founder of Blue Lake Capital, a commercial real estate investment firm specialized in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.
A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.
Ellie is the host of REady2Scale , a podcast that highlights honest, insightful, and thought-provoking discussions on the multiple approaches for successful real estate investing.
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.
You can read more about Blue Lake Capital and Ellie Perlman at www.bluelake-capital.com.