As many passive investors know, building wealth through real estate investment is not just about obtaining a dream retirement or living it up. While the extra income and wealth generated can undoubtedly help you achieve these goals, they’re only a tiny part of the primary reason people invest in real estate.
The creation of generational wealth is what it’s all about. Real estate has long been one of the best vehicles for establishing wealth for not just your current family but for generations to come. Income-generating investment properties dial that wealth potential up a notch.
If you want to ensure your hard work lives on through the generations, keep reading!
3 Strategies for Securing Generational Wealth Through Real Estate
Method 1: Acquire investment properties for your children
While we often associate generational wealth with our passing, that doesn’t have to be the case. As an investor, you can acquire properties while planning to transfer ownership to that child. It may be a graduation or a wedding gift, or you may use your passive income to fund those significant financial milestones for your offspring: higher education, weddings, first homes, etc.
You already know why owning real estate is a great thing. In today’s economic climate, homeownership (not to mention investment properties) seems impossible for Gen Z and many millennials. If you can give your child a head start through your investments, why wouldn’t you?
Method 2: Leave properties to your heirs
Estate planning should be a natural part of this conversation. Some of us aren’t comfortable with the thought of dying but put those fears aside. Estate planning is about easing the burden on your family and ensuring they’re taken care of when you’re gone.
Option #1 – The Will
Assets that are part of your estate can be designated in a will. Of course, a will is something you will want to develop with the help of a lawyer. Perhaps the top consideration here is assets in a well are usually subject to probate court. This can be a lengthy, costly, and complicated process. Additionally, wills are a matter of public record once you die. Anyone could request a copy, which could be a privacy concern for your family.
Speak with an estate planner or lawyer to determine if this is the proper structure for your family.
Option #2 – The Trust
A trust circumvents some of the issues posed by a will and testament. In this case, you put properties or other assets into a trust. This means the assets in that trust are technically not owned by you and are not part of your estate. In a living trust, you can act as the trustee and thus retain control over the assets therein. After your death, these assets can be passed on to your heirs without probate.
This is particularly beneficial if you own investment properties in multiple states, as each state has its own probate court.
Consult a pro on this one. State regulations vary, and you want to establish a secure and effective trust.
Option #3 – Transfer-on-Death Deeds
Transfer-on-death deeds are reasonably new to the estate planning world. These deeds don’t become valid until you die, so you maintain the right to sell, refinance/mortgage, or disregard the deed. When you die, the beneficiary becomes the legal owner and avoids probate.
There are limitations to these deeds, but they are well-suited for a passive SFR investor:
- Properties must be single-family or condos, on fewer than 40 acres, or on a residence with fewer than four units.
- The transfer-on-death deed must be signed and notarized.
- The deed must be recorded within 60 days of execution.
- The beneficiary must file for a Change of Ownership Statement within 150 days of your death.
Regardless of which option you pursue, do so with the help of a qualified professional.
Method 3: Be a wise steward of your assets
This last method is very simple. Ensuring your wealth lasts and benefits future generations means you must care for what you have. Wise stewardship means living within your means, saving and investing carefully, and taking care of your assets, physically and legally.
The more careful you are with your money, the more you can afford acts of generosity. While families may differ in how they handle financial aid, being a wise steward gives you the option to help your children as you see fit.
This, in turn, can empower them to save up, build their own investments, and get the head start that so many young people desperately need.
Choose a partner that specializes in setting investors up for long-term success through real estate investment.