The kind of wealth you are thinking of is money and privilege passed from generation to generation – parents to children and on and on. This wealth can be in the form of an ongoing business, shares in a company, intellectual property, expensive art, or real estate.
How are you going to create that wealth? Does your ability to build generational wealth depend on how much money you make during your lifetime or on how much of that money you can keep? Both are important, but one is even more.
We all have heard stories of people who made or inherited millions of dollars and still became broke. This happens because anybody can burn their way through money; it only takes time. Conversely, time can also be your best ally when building wealth.
With time it is possible to turn a few thousand dollars into a massive asset base that can sustain you and your future offspring for years to come. Generational wealth is determined not by how much money you have at the start but by how well you manage that money.
Foundations for building generational wealth
Three things must be part of your wealth-creation strategy to build wealth that will last beyond the lives of your immediate heirs.
- A generational wealth plan
A framework for responsible management of inherited assets. This plan outlines goals, objectives, roles, and decision-making processes. It helps family members develop the capacity to be financially responsible.
- Impartial trustees
A governing body overseeing your heirs’ actions is vital for averting calamity. It shields the wealth from the inexperience and personal differences of your family. It also serves as an advisory body and sounding board for new ideas.
- Assets with long-term growth potentials
Assets can retain their value and grow in the face of economic turmoil and political upheavals. These assets must be diverse and spread across different geographies.
Building generational wealth through real estate investing
Having established the foundation, what is the best asset for building generational wealth? The simple answer is real estate. Real estate is the best investment vehicle for millions of wealthy families worldwide to preserve and grow wealth.
What should you know about real estate investing as the arrowhead of your generational wealth strategy? These five tips will let you maximize your benefits when buying real estate.
1. Diversify your portfolio
2. Take advantage of emerging opportunities
These can be emerging opportunities with a specific type of real estate or opportunities in new locations. For example, while the ongoing e-commerce boom has hurt the fortunes of certain types of commercial real estate, it has created opportunities for owners of warehousing facilities. At the same time, the trend is more noticeable in some locations than in others.
3. Invest for cash flow and capital gains
4. Hire competent property managers
There are better strategies than self-managed real estate if you aim to build an extensive portfolio of investment properties. This approach limits the number of properties you can manage effectively. It also imposes geographical limits on your investments; you are forced only to buy properties near you because they are easy to access. Hiring a competent property manager removes these limitations by helping you find the best way to pay rent online and other necessities.
5. Take advantage of tax benefits
Real estate investing is a team sport; you need seasoned professionals to help you make more money. You can increase profits immensely if you use an intelligent strategy that lets you shield your investments from taxes. By choosing investment locations and property types according to their tax benefits, you will defer taxes indefinitely while continuing to earn money on your investments.