Investment Strategies

Direct Source Wealth has developed a disciplined, stewardship-driven set of strategies intended to help investors pursue their long-term objectives with clarity. Below, you’ll find these strategies outlined in straightforward terms, each paired with a brief, plain-English example to show how the approach is applied. The examples are illustrative—not promises or projections—so you can assess whether the framework aligns with your own goals. This overview is informational only and not an offer or recommendation.

3 Main Strategies

Multi-Family Value Add

Private Lending

Development

The 500/200 Strategy

In the realm of real estate investing, many are drawn to the potential of passive income and the prospect of early retirement. Navigating a market teeming with diverse strategies can be challenging. Among these approaches is the 500/200 Real Estate Strategy, which illustrates how a $500,000 investment could lead to an annual passive income of $200,000 within a decade, based on certain assumptions and conditions.

The 500/200 strategy is a long-term buy-and-hold approach explicitly tailored for multifamily real estate. Here's a step-by-step breakdown:

Pooling Resources

Investors collectively invest in a multi-unit property.

Value Addition

The property undergoes enhancements, from aesthetic upgrades like new paint and landscaping to operational improvements such as effective marketing and management.

Capitalizing on Appreciation

Over time, as the property's value increases, primarily driven by cash flow and occupancy, there's an opportunity to refinance.

Equity Extraction

By refinancing, new equity created in the property can be extracted, often returning a portion of the original investment to the investors.

The Numbers Behind the Strategy

To truly grasp the potential of the 500/200 strategy, let's delve into some assumptions and the math behind them:

Average Return on Cash Flow

An average 10% return on cash flow for each deal.

Refinancing Timeline

Refinancing occurs after 3 years, post value addition.

Equity Return

50% of the original investment is returned every 3 years due to refinancing, which is then reinvested along with the annual cash flows.

Detailed Breakdown

Year 1:
- Investment: $500,000
- Annual Cash Flow (10% of $500,000): $50,000

Year 4:
- Refinancing returns 50% of the original investment: 0.5 x $500,000 = $250,000
- Accumulated cash flow from Year 1 to Year 3: $50,000 x 3 = $150,000
- Total available for next investment: $250,000 + $150,000 = $400,000

Year 7:
- Refinancing returns 50% of the $400,000 invested in Year 4: 0.5 x $400,000 = $200,000
- Cash flow from Year 1 deal for 3 years: $50,000 x 3 = $150,000
- Cash flow from Year 4 deal (10% of $400,000) for 3 years: $40,000 x 3 = $120,000
- Total accumulated cash flow: $150,000 + $120,000 = $270,000
- Total available for next investment: $200,000 + $270,000 = $470,000

Year 10:
- Refinancing returns 50% of the $470,000 invested in Year 7: 0.5 x $470,000 = $235,000
- Cash flow from Year 1 deal for 3 years: $50,000 x 3 = $150,000
- Cash flow from Year 4 deal for 3 years: $40,000 x 3 = $120,000
- Cash flow from Year 7 deal (10% of $470,000) for 3 years: $47,000 x 3 = $141,000
- Total accumulated cash flow: $150,000 + $120,000 + $141,000 = $411,000
- Total available for next investment: $235,000 + $411,000 = $646,000

The Compounding Effect: By year ten, the combined cash flow from all deals totals:

Year 1 deal: $50,000
Year 4 deal: $40,000
Year 7 deal: $47,000
Year 10 deal (10% of $646,000): $64,600
Total Annual Cash Flow: $50,000 + $40,000 + $47,000 + $64,600 = $201,600

Real-World Implications

While the 500/200 strategy paints a promising picture, it's essential to note that this model is based on a ten-year real estate cycle. Some projects might exceed expectations, while others may only meet the mark. Hence, it's presented as a conservative model.

At Direct Source Wealth, our aim aligns with this strategy's principles. We target a minimum of a 10% return on all our projects, striving to return over 50% of the investors' capital within 3-5 years.

Summary

The 500/200 Real Estate Strategy offers a structured approach to achieving substantial passive income and long-term growth. This strategy provides a roadmap to potential success for accredited investors looking to navigate the multifamily real estate landscape.

Disclaimer: The demonstration herein is a hypothetical illustration and is not intended to predict or project future return in an investment strategy. This hypothetical illustration makes certain assumptions regarding the investment in real estate securities, and returns will vary based on the potential cash flow generated by the investments, the ability of the investment to achieve its stated goals, and the value of the investment upon disposition. There is a risk that the investors may not achieve the forecast presented in this hypothetical illustration.

The Legacy Method

Building Generational Wealth

In the intricate landscape of real estate investing, many newcomers aim to transition from their professional careers to active real estate roles. However, at Direct Source Wealth, our approach is distinctively different. We're not targeting those looking to swap their day jobs for real estate tasks. Instead, our focus is on holistic transformation.

The Legacy Method is more than just a real estate strategy; it's a transformative approach to wealth generation. Direct Source Wealth focuses on equipping investors with the tools, strategies, and mindset needed for a comprehensive wealth journey that spans generations.

Understanding the Legacy Method

The Legacy Method guides investors through three pivotal stages:

1. Wealth Creation

This involves transitioning from active income, earned through time and effort, to passive income, generated through a return on capital.

2. Wealth Building

Here, investors balance active and passive income sources, laying the foundation for genuine wealth.

3. Wealth Compounding

At this stage, investors achieve financial freedom, where active income becomes optional, and passion projects drive them.

A scripture aptly describes this journey: building your wealth on a solid foundation rather than on shifting sand. This underscores the importance of a robust mindset. In this context, money is not merely a tangible asset but a reflection of one's mentality and approach.

Navigating the Stages with Direct Source Wealth's Strategies

The progression through these stages is facilitated by employing specific strategies. Direct Source Wealth has curated a suite of tactics and strategies tailored for this journey. These include, but are not limited to, our 500/200 strategy, high income strategy, tax strategy, and our "Subject To" strategy. While these strategies are applicable at each stage, their proportion and emphasis might vary. The overarching goal is to empower investors not only to manage their investments but also to build and oversee a team that aids in this journey.

Direct Source Wealth's Distinctive Approach

What sets Direct Source Wealth apart is our emphasis on empowering investors. Our objective isn't to transform you into an active real estate investor. Instead, we aim to help you retire from your traditional job and assist you in building a robust system and team. This team is designed for wealth creation, building, and compounding, benefiting multiple generations.

Most platforms emphasize the tactical aspects of real estate. However, there's a glaring gap: the lack of focus on asset management and wealth management. We address this void, offering guidance on both fronts, ensuring that investors are not only generating wealth but also effectively managing and growing it.

The Power of the "Subject To"

As seasoned real estate investors might know, the "Subject To" strategy has been a gem in the single-family space for quite some time. However, we have taken this strategy to new heights, tailoring it for multifamily and luxury real estate. By integrating the principles of wraps and subject-to mortgage assumptions, DSW locks in favorable interest rates, directly assuming loans from sellers for the long haul.

In the upcoming years, the real estate market, especially the high-luxury sector, is poised for significant shifts. Recent data from markets like Miami indicates a potential slowdown in the luxury segment. With luxury properties spending more days on the market and inventory levels rising, there's a growing sentiment of caution. Additionally, as luxury real estate prices in certain areas begin to rival those of historically high-priced markets like California, there's a looming question of sustainability.

Yet, while some see chaos, we see a golden opportunity. Sophisticated sellers, even those not currently in distress, are anticipated to seek swift exits, aiming to preempt potential market downturns. This presents a unique chance for investors to work collaboratively with sellers, crafting solutions that benefit both parties. The goal is to navigate the complexities of the market, leveraging the "Subject To” strategy to capitalize on these emerging trends.

Why Opt for the "Subject To" Strategy?

The Subject-to method offers several compelling advantages:

No Need for Traditional Financing: Investors can bypass the rigorous loan approval process, making property acquisition swifter.

Potential for No Down Payment: In some cases, sellers might not require a down payment, especially if they're motivated to quickly relieve themselves of the mortgage.

Flexibility: Terms can be negotiated directly with the seller, allowing customized agreements that benefit both parties.

Equity Buildup: As the investor continues to pay down the existing mortgage, they build equity in the property.

Creative Portfolio Expansion: This strategy allows investors to diversify their portfolios using non-traditional means.

Implementing the "Subject To" Strategy

Identify Motivated Sellers: Look for luxury properties where sellers, due to market shifts, are motivated to offer financing. This could be due to financial strain or the need for a quick exit.

Negotiate Terms: Discuss the existing loan terms, potential down payment, and other conditions.

Legal Documentation: Always ensure the agreement is legally documented. Engaging a real estate attorney is crucial to ensure all aspects are covered.

Stay Compliant: Understand the "due on sale" clause in many mortgages and be prepared for potential risks.

Managing Your "Subject To" Investments

Regular Monitoring: Ensure timely mortgage payments to maintain the property's good standing.

Build Strong Seller Relationships: Maintain open communication with the seller, as the loan remains in their name.

Exit Strategies: Plan for potential exit strategies, such as refinancing or selling the property.

Risks and Mitigation

Every investment strategy has its risks, and the Subject-to method is no exception:

High Leverage Equals More Risk: The strategy, while lucrative, is highly leveraged and can be riskier than traditional investments.

Due on Sale Clause: Lenders may have the right to demand full payment upon selling the property.

Property Condition: Ensure thorough property inspections to avoid unforeseen repair costs.

Clear Title: Ensure the property has a clear title without undisclosed liens.

Summary

For the past half-decade, we have been strategically positioning Direct Source Wealth for this moment. The DSW real estate assets, anchored in long-term holdings, have ensured a minimized debt profile. Now, the focus is on engaging sellers who might have been overly ambitious in the past. By assuming some of these historical debts and leveraging their own financing, DSW offers a lifeline to these sellers. The strategy? Acquire properties, allow the market to stabilize, and then refinance. This approach offers a practical alternative to traditional real estate investment, and it's the strategy we are most enthusiastic about, given its potential for higher-than-usual returns on investment.