Real Estate Investing Returns: The Franklin Multiple
How can real estate investors rev up their returns to achieve more success?
The Franklin Multiple
In reference to the $100 bill sporting the face of Benjamin Franklin, the ‘Franklin Multiple’ is all about achieving 100x returns. So how have other investors achieved returns similar in nature? How can real estate investors replicate this type of success?
Notable Investments that Have Delivered on the Franklin Multiple
According to the IPO Playbook, at least four notable firms have delivered 100x returns for their investors – at least over a certain period of time. They include:
Instagram and Google are tech companies that have probably delivered incredible returns for some investors as well. And, of course, real estate has also delivered amazing returns for those that have made the leap.
The Stock Market & Your Financial Future
Stocks can produce great returns, but we all know that they come with a large degree of volatility. There are definitely periods in which investors have appeared to have lost decades worth of gains. What’s scarier: stocks typically offer zero protection from the downside, and any income can be abruptly halted. This has put millions of Americans decades back in their retirement planning. At least in real estate, fluctuations are more predictable and gradual, and you’ll never lose the hard asset. Changes in trading values don’t have to impact monthly income and cash flow either.
So what are some of the ways that investors can realize the Franklin Multiple in real estate?
Real Estate Wholesaling
Wholesaling real estate is clearly one of the best ways to quickly and predictably multiply your earnings. With transactional funding, real estate investors can effectively flip properties with no money down. Even with a few hundred dollars spent in marketing, or as a deposit or for inspections, the cash on cash returns can be very significant. A deal requiring $500 out of pocket, which yields $50,000 in gross profits, can deliver huge returns in a matter of days.
The use of leverage for acquiring income producing properties is another way to maximize returns and growth. Today, it is still possible to put little or no money down with creatively structured deals, owner financing, and even government loans. The positive cash flow from rents may not quickly deliver 100x yields alone, but compare the returns to the actual cash you are putting in. These returns can be improved upon even further by acquiring properties at substantial discounts, as well as making value add improvements.
While most investors don’t buy properties based on speculation alone, some will unquestionably see equity appreciation can deliver on the returns they are seeking. Just a modest 10% increase in equity each year will deliver a 100% return in 10 years. That’s far more when you look at cash on cash returns. Many U.S. neighborhoods have appreciated much faster than that. Again, there are multiple ways to boost this rate between buying discount properties, subdividing land, getting rezoning requests approved, and changing the positioning and appeal of a property with good marketing and branding.
Real Estate Businesses
The original founders of companies like Google and Facebook have made out far better than the individuals which only got in after their companies went IPO. The IPO is where the smart money investors normally get out and enjoy their exit. So how about building your own real estate business? InvestorPlace notes that the above companies all share some similarities: rapid growth, which was orchestrated by strategically starting very small, and then growing into new locations, niches, and products. Facebook started at just one school, opened up to another, and then opened up to the public, and business users. Google has gone from search engine to internet advertising to driverless cars, social media, and a lot more. Consider that Facebook was started on just $1,000. Mark Zuckerberg is now worth over $3.5 billion. Launching a competing social media network might be an impossible mission, but there is plenty of room to grow in real estate, and perhaps even selling real estate to the likes of Zuckerberg, who has been increasing his real estate investments.