The two main reasons people buy assets are to create a reliable passive income source and prepare for retirement. Most investors are motivated by the desire for a source of income that isn’t tied to a job, plus the freedom to travel, live wherever they want, and determine their standard of living.
Fundamentally, most of us become investors to gain the power to control our destinies. But at the same time, we also want to build something we can leave to our children. You want your success as an investor to have a marked effect on the quality of life of your future generations.
Even if it is not a clearly articulated plan, the desire to build generational wealth lurks within the heart of every investor. What is generational wealth? Why do some investors build generational wealth while the assets accumulated by another investor dry up a few years after their passing?
The keys to generational wealth
Generational wealth is assets acquired by one generation but endures for at least two generations. It is wealth created today but will keep impacting your descendants’ lives for many generations. Contrary to common belief, this kind of wealth does not happen because individuals make more money than they could spend in their lifetime.
Generational wealth comes from adopting a unique way of looking at your decisions as an investor. It means being able to distinguish between the strategy for building personal wealth and that for building generational wealth. Investors who become the founders of a family fortune have a specific set of rules for investing:
· Trans-generational planning
It’s been said that 90% of all inherited wealth doesn’t make it past the third generation. Most people who inherit money will not leave anything to their children. This is why investors who build generational wealth create a wealth-management plan that outlives them.
· Professional wealth planning and management
These investors know they can’t always rely on the financial competence of their successors. Therefore, they appoint professional wealth managers to shield the assets from the inexperience and recklessness of their descendants.
· Investments in stable long-term assets
Although a wealthy family’s money is spread into diverse investments, its bulk is held in assets that retain their value in all kinds of economic climates. They seek safe, stable, and intrinsically valuable investments, like commercial real estate.
Why commercial real estate creates generational wealth
Real estate, as a whole, is one of the best investment options for investors. Real estate is favored ahead of stocks because you get value appreciation and a steady source of income with real estate. Stocks do not generate income at the same rate as real estate. Dividend payments from stocks are not regular, and how much money it pays out can be unpredictable.
But with real estate, you have a predictable source of income. As long as the rental property is in good physical condition and has tenants who pay the rent regularly, it can generate income in perpetuity. This is why investing in properties is easily the best way to ensure your descendants always have income that is not tied to their abilities.
But all real estate investments are not equal. You can invest in several different types of real estate, but the best property investment for building generational wealth is in commercial real estate. Commercial property is one that is leased to businesses. It can be a retail/office building, warehouse, industrial building, or multiunit apartment complex.
The benefits of investing in any real estate include:
· Income generation
When you invest in property, you do not have to wait until you sell it to profit from the investment. If you have a paying tenant in the building, you can earn income.
· Intrinsically valuable
Real estate has innate value, unlike stocks. People will always need a place to live and do business. That’s why an investment in real estate will always be valuable.
· Finite supply
Part of the value of real estate lies in the fact that land is limited in supply; nobody can manufacture it. Additionally, you cannot move land around.
· Tax benefits
Investing in properties comes with tax incentives that let investors reduce the cost of operating their property while increasing their profits.
These benefits are available with any real estate investment. However, there are additional benefits when you invest in commercial real estate. These are:
· Less competition
Commercial real estate is less competitive and therefore more profitable than residential real estate because there are fewer commercial properties.
· Higher-income potential
Since commercial property tenants use the space for income-generating activities, they pay higher rents than residential tenants.
· Long-term tenants
Commercial properties are more stable. The businesses that rent them often lease long-term because they don’t want disruptions to their operations.
· More investment opportunities
As an investor, you have more options when investing in commercial properties than residential real estate.
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