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Many people want to build wealth to ensure that future generations have a solid financial foundation and security. This type of wealth is different from merely having enough to retire; it is achieving true, lasting freedom for yourself and the generations to come.
Real estate has long been an avenue to build this, as capital appreciation combined with passive income makes these investments scalable and repeatable.
Unfortunately, when people think of real estate, they often think of buying and renting single-family homes. While there’s nothing wrong with that, it’s often a long road to generational wealth. Instead, I find that if you want to build long-lasting wealth through real estate there are five strategies to consider.
A Quick Definition: What Is Generational Wealth?
Before getting into the strategies, it’s first worth discussing what the phrase generational wealth means. Generational wealth refers to assets and financial resources passed from one generation to the next. It differs from concepts like financial freedom, which refers to the immediate enjoyment of life. In contrast, generational wealth refers to a legacy that can include tangible assets, a business, real estate, investments and other income-producing instruments that you can hand down.
1. Invest In A Real Estate Syndication
I find that investing in a real estate syndication is one of the premier ways families can build long-lasting wealth.
Real estate syndications are effectively pools of investors who will purchase a commercial or multifamily building (often apartments). The project lead, or the general partner, does all the work while the investors, who are known as the limited partners, provide the finances.
While all investments have the risk of loss, syndications tend to be a popular choice as they can provide substantial returns quickly. For example, a syndication might offer 8% returns for five years and a 50% increase on your initial capital investment at the end of the term. A hypothetical investment in a syndication with those terms would nearly double its money in five years.
The general partner will use the capital to renovate and rehab the buildings, making improvements that will allow the syndication to charge higher rents. As commercial properties derive value from rent prices, those increases mean they are worth more. After about five years, most syndications look to exit the deal, selling the newly-renovated building for a sizable profit with the limited partners receiving a share of the rents and a share of the building sale.
2. Invest In Multifamily Properties
Of course, you don’t need a syndication to invest in multifamily real estate. Depending on your financial means, you can invest in multifamily properties yourself. Any building containing over four units is technically “multifamily,” so it’s often possible to find a reasonably priced building that qualifies.
There are quite a few benefits of multifamily homes over single-family properties. The most significant benefit, however, is cash flow. With a single-tenant property, you are at higher risk for cash flow loss. If the tenant leaves and the property remains vacant, all cash flow has essentially halted. With a multifamily property, there is a much lower risk of this as multiple tenants means cash flow will remain more steady. When tenants leave, other tenants remain and new tenants move in.
While single-family homes are good, multifamily properties are better for building generational wealth. A few multifamily apartment buildings can ensure you and the generations after you have an adequate supply of passive income.
3. Invest In REITs (Real Estate Investment Trusts)
Companies that hold and, most often, manage income-producing real estate are known as REITs. The public can trade REITs on well-known exchanges. With a REIT, you’re buying shares in a company that owns the asset, you don’t have ownership of the underlying real estate.
Returns on REITs are typically not the same as with investing in syndications. Because syndications factor in cash flow as well as the sale of the property, returns can be much higher. Since REITs are publicly traded on major exchanges, they are more aligned with typical stock market returns. Still, they are a great way to quickly diversify your real estate portfolio, especially as you grow your wealth.
4. The BRRRR Method
The BRRRR method is short for “buy, rehab, rent, refinance, repeat.” It is a strategy whereby people can buy distressed real estate, rent it out and use the equity to fund further investments.
A typical BRRRR flip involves finding a run-down property. This property typically has cosmetic repairs that are relatively easy to fix (the more you can do yourself, the better) but hurt the sales price. For example, someone using the BRRRR method might find a home with outdated paint colors, old cabinets and outdated appliances. These are relatively easy fixes but can hinder a sale, resulting in a low price.
After purchasing the home, you would renovate it and rent it. Once you find a tenant, you refinance the property and use that money as a down payment on another home to repeat the process.
Generational Wealth Through Real Estate
Generational wealth is more attainable through real estate than people realize. Combining real estate strategies like investing in REITs or multifamily syndications, using the BRRRR method and house hacking can be excellent ways to build generational wealth.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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