Generational Wealth: How to Build It with Multi-Family Investments
From childhood, we’re taught to set goals and work towards them. One of the most important goals to have as you get older is to leave your children and family in better financial shape than you were when you entered the world.
For some, it may seem difficult to set yourself up to make this possible, but if you start investing early, it can be easy. For others, you may have started saving but the growth is slow and you want a different, more efficient way to scale your fixed income.
Below is a guide to better understand the benefits of multifamily investments so that you can build generational wealth while also leaving a lasting legacy behind.
Step 1: Why Invest in Multifamily?
Generational wealth, contrasted against the notion of providing a better life for the next generation, is an important concept to consider in today’s economy. Many people like
yourself are searching for ways to ensure that their children and grandchildren will have a more comfortable lifestyle than they did.
Investing in multifamily real estate is an investment strategy that allows investors to participate in four different income streams.. There are two ways of thinking about investing in multifamily properties.
- By investing for immediate profit. When you buy a multifamily property, you can hope that its value increases quickly and that you can sell it for a profit sooner rather than later. In the meantime, you will benefit from passive payments that are paid out monthly, quarterly, or yearly.
- By looking at it as a long-term real estate investment. If you hold onto your property and let it appreciate, then eventually, rent will rise along with property values, providing annual cash flow after expenses but allowing your money to grow into something substantial over time. Additionally, your pay-out structure will increase allowing you to reinvest those gains and grow your wealth significantly.
Depending on your individual circumstances and scope of time, you can choose your own investment philosophy. Whether that be invest as an active investor or passively.
Step 2: What’s Holding You Back?
Single stream income, such as a bi-weekly paycheck from an employer, is a great way to pay off immediate needs such as housing, groceries, and day-to-day necessities. However, you are limited to set aside funds for generational wealth building as you may not have enough residual income to increase wealth over time.
There could be several reasons you are not currently making your money work harder for you and one of the biggest reasons investors don’t see the results they want in their portfolios is because they’re not asking themselves what’s holding them back.
That begins with asking yourself some hard questions about what your current situation is and what you want it to be. You might be surprised by how easy it is to answer those questions—and how quickly your financial goals become attainable once you’ve been clear about them.
There are three major factors that can hold you back from achieving your financial goals, and they all come down to cash flow—generating cash, managing it efficiently, and using it well.
Finding success requires a lot of hard work and patience though, which is why so many investors turn to wealth managers, or banking institutions to help them make these decisions. But it doesn’t always have to be that complicated or out of your hands.
There are many ways to achieve these results, but there are a few basic concepts to keep in mind: work hard, be smart about your expenses, keep costs low and reinvest as much money as possible into growing your assets or your investment portfolio
Step 3: Get Started with Your First Deal.
Once you have decided to begin investing in real estate, there are several factors you need to consider before you begin moving funds. These first steps are critical to ensure the longevity, security, and growth of your investment portfolio.
Get started with a realistic expectation: it’s time to get your first real estate investment deal going. But in order to do so, you have to get started with a healthy dose of realism.
For starters: realize that you’re not going to become a millionaire overnight (not even close). Realize that there are no shortcuts and that it’s an involved process to make money from real estate. Realize that this isn’t the one-time opportunity it would take to win the lotto or make a quick buck flipping houses—this is going to be something you start doing now but that will last for years, if not decades, into the future.
Additionally, do you have the time and experience to take a hands-on approach to real estate investing? It would be much easier to invest in a passive-income stream where you do not have to chase down rent invoices, worry about insurance, and deal with ongoing maintenance issues that are guaranteed to happen.
To help keep your expectations realistic, ask yourself some important questions about the deal.
- Will this investment require your time, effort, or physical input?
- What kind of property are you looking for (apartment building, land, single-family home)?
- How would you like to build your portfolio—areas with high rental demand (like New York City) or low rental demand (like rural Colorado)? Consider how much competition there will be for each of these areas.
- Are you interested in long-term growth or short-term gains?
Finally, think about how you want to move forward with your multifamily investments for your generational wealth and growth. When you have the answers to these questions down, we can get started on your first steps!
Step 4: Grow Your Portfolio.
Many people have a tough time growing their portfolios. They are happy doing what they are doing and don’t see a need for more. The biggest key here is diversification, but it takes time and effort to grow your portfolio, so you need a strategy that works.
There are a few different strategies I would suggest.
- Join real estate investment clubs. A real estate investment club (like the Falcon Capital Club) helps you deal with the challenges of investing in real estate by providing you with a group of other investors where you can share ideas, deals, and resources. Investing in real estate requires a lot of knowledge and skill but having a group like this can give you the ability to maximize your return.
- Pool money together with other investors.. A great way to do this is by joining private lending groups. Private lending groups are groups of people who all put their money into one place, and then decide together where they want to investor who they want to lend it out to. This is a great way to diversify your risk.
- Buy property in areas that seem like they will take off. Such as San Francisco, New York City, and more. You can also look at areas with a lot of growth potential or development opportunities—and then hold onto those properties long enough until they become worth more than what you paid for them.
Step 5: Protect Your Wealth.
On average the typical inheritance passed down in the United States is $110,000. This amount can be quickly eroded through taxes, debt, and other liabilities. What you think you may have set aside for the next generation may not go as far as you hope.
You should always ensure that your heirs can claim their inheritance without having to go through probate, which can take a long time and eat into your estate. There are two main ways of doing so.
- First, you can set up a living trust. They’re just called living trusts because they don’t become active until you die. When it comes to passing on assets upon death, they work just like wills.
- The second option is you can set up an irrevocable life insurance trust, This allows you to bequeath a large sum of money or property directly out of your estate without having your heirs pay any taxes.
In short, an ILIT provides for significant tax savings over other types of wealth transfers. Either option is a great choice depending on how you want to protect your generational wealth.
By taking action now, you can help set up future generations to increase their wealth, standards of living, and open new doors that they may not have had access to
otherwise. While you may not be able to control what happens when you are gone, you can control what is passed down.
Generational wealth is a good thing. In many ways, it ensures that your efforts are not in vain and that you can look back on your life and know you did something meaningful. However, simply working hard for money doesn’t necessarily mean you’ll have generational wealth.
Many people work hard all their lives only to find out that they’ve put their money into an investment vehicle that turns out to be poorly managed or just poorly suited for them.
To truly achieve generational wealth, you should be working on building the kind of foundation for yourself as well as your children. If you have yet to start thinking about your first real estate investment opportunity, now is the time to start. Here at Falcon Capital we pride ourselves on not only purchasing properties but extensively educating our investors so that they can make sound investment decisions.
Our team of trusted experts who focus on multifamily investments and not on stocks or bonds alone can help guide you through the process and be your partner in these types of investment. Our goal is to help increase your wealth passively and help grow your legacy for years to come.