There are some families whose names are synonymous with wealth. They seem to have had money for as long as their family names have existed. People expect that their descendants will have money because being wealthy is as natural to them as breathing air.
These are the families we call “old money families.” Their wealth remains constant across successive generations despite the economic ups and downs of their times. We accept it as a fact that every new generation of that family is going to be rich.
How are these wealthy families maintaining their wealth across several generations when the average rich person loses their money during their lifetime? 70% of wealthy people do not pass their wealth to their children. The children start life broke like most people.
Even more interesting, most people who inherit wealth from their parents (70%) are unable to pass that wealth to their children because they spend it all. The statistics show that the generality of affluent families goes from riches to rags within three generations.
How are wealthy families different? What do they do that other rich people don’t do? What are the key strategies old money families use to build and retain their wealth? This post looks at one of those strategies (real estate) as an instrument for building generational wealth.
How the rich create generational wealth through real estate
Blanket Homes says real estate is a favorite asset for wealthy families because it offers unique advantages that are not available with other assets. These include:
Intrinsic value: Real estate is always in demand. It doesn’t lose its value to new trends and innovations.- It is tangible: Unlike stocks and bonds (paper assets), real estate is a physical asset that never loses its value completely.
- Recurring cash flow: Rental properties yield regular income while also appreciating in value
- Leverage: Real estate investing permits massive leverage. Property can also be used as collateral when borrowing money
- Scalability: Real estate is reasonably easy to scale. One well-managed investment property can become eight in a relatively short time.
- Tax benefits: Property investors qualify for tax deductions that are not available with other investment options
But what is the exact real estate investment strategy wealthy families use? The four-step strategy below describes the process wealthy families have used for ages to amass wealth through real estate.
1. Invest in properties with positive cash flow
Experienced property investors have a straightforward rule for investing. They only buy properties with clear profit-making potential. Inexperienced investors often buy an investment property, expecting it to be profitable. Seasoned investors never do that.
Make investing in cash flow-positive properties the foundation for building your real estate empire. With such investments, you don’t have to liquidate your property to earn from it. The monthly income from the investment can also help finance the acquisition of more cash-flow-positive properties.
2. Strategic use of leverage and equity
Buying real estate is capital-intensive. You would only get started if you had the money to buy all the real estate you wanted. That is why savvy investors know to use leverage – other people’s money – when investing in real estate.
Also, the built-up equity in property offers a goldmine of opportunities for quickly and cheaply scaling your portfolio. The combination of leverage and equity will relieve you of the need to save up for the down payment every time you want to buy a new property.
3. Get professional property management
Unlike stocks, real estate is an active investment that requires constant inputs of time and effort. Managing a rental property can be as time-demanding as a 9-5 job. But most people who get into real estate investing do it to earn passive income.
The only way to transform an investment property into a source of passive income is to put it under professional management. With a proper manager, you can separate the growth of your portfolio from the limitations of your time and expertise. You also give yourself the freedom to buy properties in distant locations.
4. Estate planning and wealth managers
Placing wealth under the supervision of professional estate managers separates the performance of those assets from the abilities of the beneficiaries. With this step, you don’t have to rely on the expertise of your descendants for the preservation of your wealth.
Furthermore, financial planners and wealth managers don’t just work with you to preserve wealth; they also give you the tools to create that wealth. A good financial planner will streamline your financial goals with your investment strategy and lifestyle.
Conclusion
Families with intergenerational wealth are not that way because they are superhuman. They succeed because they are willing to do things that most of us only discuss. Anyone can employ the wealth-creation strategies the rich and powerful use to launch their own family into generational wealth.
All it takes is a firm resolve and a clear roadmap like the one provided here.
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