Generational wealth is the kind of wealth you can pass down from one generation to another. People sometimes call it family wealth or legacy wealth. Building generational wealth is everybody’s dream. We all want to build a legacy and pass it down to our children and grandchildren. In this article, you will learn how to build generational wealth through real estate.
Real estate investment (according to experts), is one of the best ways to build your wealth. It helps you diversify your portfolio and create great wealth, which you can pass on to your children.
And the best part of real estate investment is that it’s very flexible and easy to manage.
Real estate is a unique form of investment because it serves different purposes.
Yet, as profitable as real estate investment is, most people don’t understand how to start it.
So, here are some tips to help you build generational wealth through real estate.
Read Also: The Decision to Own Vs. Rent a Home
#1. Know Yourself
Before you start your real estate investment journey, it’s important to know yourself.
Ask yourself specific questions. These questions will help you understand whether the real estate journey is for you or not.
For instance, most real estate investors’ goal is to make money. But, if you want to build generational wealth through real estate, you should look beyond quick money.
Don’t concentrate on making quick money off your real estate investments. Think of how you can create recurrent stable streams of tax-advantaged income and equity growth.
Furthermore, develop creative ways to diversify your real estate investment. a diversified investment provides multisource income, a hedge against inflation, and other benefits.
Now you have established your goals. And you know what you should focus on.
The question now is – how are you going to achieve these goals? I mean, how can you bridge the gap between where you are right now and where you aspire to be?
You will need a moment of reflection to think this through. Look inward and see if you have what it takes to embark on this journey. Remember, your focus should be on the bigger picture.
During your reflective moments, decide whether to invest in passive or active investment.
Active Vs. Passive Real Estate Investing
If you want to build generational wealth through real estate, decide on how you want to invest. It could be passive or active, depending on some factors I will discuss later in this section.
If you decide to be an active investor, you will involve in managing your real estate investment. And the investment could be asset management, property management, etc.
As an active investor, you will bring your real estate experience and expertise to the table. You will put in place a strategic business plan. The plan will help you grow your rent and appreciate your real estate property.
You will take an active part in the buying and selling decisions, business plans, capital improvement plans, and net income. You may sometimes involve yourself in the day-to-day management of your investment.
Again, as an active real estate investor, you should be ready to dedicate your time. You also need to be a business expert and have a little bit of real estate experience.
But, if you don’t have enough time and expertise, you can opt for passive real estate investment.
In passive investment, you don’t involve yourself in the management of your investment. All you do is hire reliable and trustworthy professionals. And these professionals will manage the investment for you.
#2. Commercial or Residential Real Estate
Generally, there are two types of real estate investment – residential and commercial real estate.
Commercial real estate is any property for retail, office, industrial, hospitality, and storage use.
Residential real estate is real estate property with four units or smaller. It could be single-family homes, duplexes, triplexes, and quads.
As a beginner, you can use residential space to build generational wealth through real estate.
But over time, you should consider commercial real estate. That is because there is a lack of economies of scale and professional property management in the residential space. And this could limit your success in the long run.
#3. Do Your Research
Regardless of the type of investor you want to become (active or passive) or the type of real estate you want to invest in, you need to research.
Real estate investment goes beyond buying and selling properties. Like every other investment, you must understand the interplay of demand and supply in the real estate industry. Otherwise, you will fail even before you start.
So, if you want to build generational wealth through real estate, start with extensive research. Know how much you need to start, the income you could make, and the market’s volatility.
Buying a real estate property without understanding your market is a recipe for disaster. So, start by studying the market and developing an actionable business plan based on your market understanding.
In a nutshell, always align your market, business plan, and capabilities in your real estate journey. Otherwise, your investment may not yield the expected result.
#4. Get Rental Income
If you approach real estate investment with the right strategy, it’s easy to build generational wealth. Like I mentioned earlier, investing in real estate can give you a multisource of income.
You can make money through passive income (inform of yield) and equity growth from appreciation. And this is a blended return.
But the mistake most real estate investors make is that they buy based on speculation. In other words, they buy low capital rate properties in coastal markets, hoping that they would appreciate in the future.
Unfortunately, this type of real estate investment only makes you money via equity. Properties in coastal markets seldom provide passive income. While this approach may pay off, the risk involved is very high.
So, always consider buying properties in markets where you can earn passive income.
If you follow these tips, you can easily build generational wealth through real estate.
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