Almost all wealthy families – families who have retained their great wealth for several generations – have one thing in common: their financial strategies. Regardless of how the family’s founder made their money, all of these families have a sizable portion of their wealth in real estate.
These real estate investments are often in the form of undeveloped, agricultural, or industrial land, as well as commercial real estate or residential rental properties. The question we should ask is this. Why do wealthy people hold so much of their wealth in real estate? Is there something they know about real estate investing that the rest of us are missing?
Real estate as a key to generational wealth
There are two critical insights a person must have to build lasting wealth.
· Only saving money is not a wealth-building strategy
While a lifestyle of not spending all the money you earn is vital to building wealth, that alone will not make you wealthy. That’s because inflation erodes the buying power of saved money and makes it less valuable.
· Invest money in valuable assets
To protect your money from inflation and grow it faster than you can through saving, you must invest that money in stable and profitable assets over the long term.
Real estate is a stable asset with intrinsic value; assets with inherent value have demand fixed to a fundamental human need. Real estate has intrinsic value because people will always need land, which is finite in supply. Even if real estate values fall in the short term, they eventually appreciate because there will always be less land for our ever-growing population. Appreciation means
Appreciation indicates greater value for existing real estate, which is why the wealthy spend their money on real estate. You, too, have the ability to do so.
Six steps to leverage real estate for generational wealth
How does an ordinary person – without access to billions of dollars – build a portfolio of real estate investments to sustain them in retirement and give their heirs a good life? Investing in real estate creates wealth via an easily accessible strategy called BRRRR. What is BRRRR? Find the answers in the steps explained below.
BRRRR stands for Buy, Renovate, Rent, Refinance, and Repeat
Buy real estate with high income-earning potential. This depends on the location of the property and the type of property. Your rental must be in an area where people want to live, and it must be a property type with many potential renters. Additionally, if you don’t want to buy a property, you will spend a lot of money to renovate it.
2. Rehab or renovate
The reason to buy a property in need of rehabilitation is that you can purchase it below its market, and after you renovate it, your total cost will still not exceed the market value. Meanwhile, the property’s value would have increased above its market value, instantly increasing your equity in the property.
You lease the property to a tenant to create cash flow. You want the rent from your rental to be more than enough to cover its expenses – mortgage, interest payments, insurance, etc. Essentially, the rental should pay for itself. Also, you want to have some money left over after all expenses are paid.
Refinancing the property will let you release the money you invested in it originally (down payment), so you can reinvest it in another rental property. This is possible because of the forced equity you created when you rehabbed the property. Furthermore, market forces would have increased its value in the 6-12 months since you bought the rental.
Once you have successfully refinanced your property, take the money, and invest it in another home. Repeat steps 1-4 several times to own as many rental properties as you want in the shortest time. But how do you ensure that managing all those rentals becomes manageable for you?
6. Put your rentals on autopilot
Transform your rental properties – which are non-passive sources of income (they require your direct involvement before they can make money) – into passive income sources. Passive income sources do not depend on your time and abilities to make money for you.
Let a professional property manager handle it to transform a rental property into a truly passive income source. Handing your property to a property manager will do the following for you:
- Improve earnings because the manager has established systems for getting the best returns on a rental.
- Give you the freedom to invest your time in more enjoyable activities.
- Let you buy more profitable properties in locations far away from you.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.