May 12, 2022
Joe Fairless

JF2809: How to Dollar-Cost Average with Real Estate Syndications | Actively Passive Investing Show with Travis Watts

In this episode of the Actively Passive Investing Show, Travis Watts explains the concept of dollar-cost averaging and how this strategy typically applied to stock market investments can also be used with private placements. 

Cost-Dollar Averaging Definition

Travis demonstrates cost-dollar averaging using stocks as an example: Say you buy $1K worth of stocks at $10 per share. Then, that stock price rises to $12 per share, and you put in another $1K. The stock then falls to $9 per share, and you put in another $1K. You get a cumulative average price of approximately $10.33 of that stock over time. 

Steps Travis Uses to Dollar-Cost Average in Multifamily Syndications

  1. Set up a bank account exclusively for your investments. This can be opened under your individual name, the name of a trust, or the name of your LLC.
  2. Fund the bank account through capital from a liquidity event or begin funding the account with active income — for example, from W-2 or 1099 income. The goal is to build the account up to a minimum investment amount. 
  3. Use the money in your account to make a passive income investment into a private placement — ideally something that distributes on a monthly basis. 

How It Works

After making your investment, you should begin receiving the monthly distributions in your bank account that you set up for investments in step 1. Say you invested $50K in a deal that produces a 10% annualized return. At the end of the year, you will have $5K in annual distributions sitting in your bank account. To make a second investment, you now only need to use $45K of your own money because you already have $5K in your account from the first investment. 

“You’re always buying at different price points with different market metrics to factor in,” Travis explains. “So you really are dollar-cost averaging with your private placements over time.” The goal is to reach a point where you can fully fund a new investment every year just by using your passive income from all your other investments inside the account.


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