Everyone knows real estate is a powerful way to build generational wealth. Not everyone knows exactly how to do it. Real estate investing can be more difficult yet simpler than you can imagine.
One thing is clear: the more responsibility we take on as parents, the further ahead our kids will start. Let me explain.
First, welcome back to the Building Generational Wealth series (Dividends), where we give kids a head start we wish we would have had.
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Don’t avoid owning real estate. Today’s trend is to avoid owning real estate or, even worse, maintaining only your primary residence (and not planning further).
The simple truth is that if you can purchase one home, you can own multiple homes. So, why don’t more people own multiple properties?
Because owning multiple properties is a pain in the rear end. Therefore, most people obtain their primary residence and focus on paying it down.
Owning one property may be enough if you only have one child. They may wait until their 60s or 70s to assume control of your home if you live a long life.
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You are in a much tougher spot if you have 2-4 kids. They would need to divide the proceeds of your home so each could get a share.
Suddenly, the $1 million home becomes $150,000 to $200,000 per child. If they don’t know how to save and invest, this money will probably go towards a liability (boat or fancy car).
Become smart in real estate. The best way to build generational wealth in real estate is to understand real estate.
Even though you own a home, you still need to understand what real estate is and what it means. Owning real estate is one of the most powerful concepts in all investing.
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Let’s say you own your primary residence free and clear. It is worth $2 million and can rent for $5,000 monthly.
Instead of giving it to your kids, you leave it in trust for them. If one of your kids proves to understand finances, they can be the manager. If not, you can assign someone to handle the financials.
After taxes, maintenance, and other costs, the home brings in $3,000 per month. You can now split the $3,000 between your three kids.
You kids now have $1,000 per month in passive rental income. Even better, this amount will continue to rise with inflation and cost of living adjustments.
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Rents to dividends. What if you took it one step further? What if you invested the $3,000 per month into an income investing portfolio?
Then, you can distribute the dividends to your kids. It wouldn’t take long for the dividends to become more than pure rental income.
The kids now have two cash-producing assets: the dividend portfolio and your home. From here, the possibilities of building more assets from these are endless.
Should you concern yourself? Most people don’t want to think this far ahead, or worse, trust that everything will work itself out in a civil matter.
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Rich people don’t leave things to chance. Your three kids may get along famously, but we each bring more people into our corner as we age.
They may marry people who don’t share the family vision. They may have kids requiring more resources, so they now have to ask more of the family.
The best technique is to have monthly or quarterly family town hall meetings like in the book “Make Your Family Rich.”
Here, you can discuss everything that is happening now and will happen in the future. There should be no surprise when you pass away.
Pay for College with Real Estate 104
But, it is also a great plan to dictate precisely what you want to transpire via your estate plan. Why leave it to chance? It’s okay to set things in motion before your passing. You should be the wisest person in the family at this age, right?
Splitting the resources. If you want to give your kids the gift of real estate before you pass, you can purchase multiple homes today.
I own three homes, one for my wife and me and one for each of our two kids. I plan on buying a few more over the next ten years.
It’s easy for me to leave resources to my kids because everything is neatly aligned and separated.
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I can leave each kid a TreasuryDirect account with Treasury Bonds, a dividend portfolio, and one house.
Is owning multiple homes ideal for me and my wife? It is an absolute nightmare. However, nothing is more rewarding than knowing our kids won’t have to struggle to obtain housing.
The more pain we endure, the easier it is for them to get ahead. My oldest son just turned 17 and is looking to join the Navy.
He knows when he returns, he already has a home lined up for his family. He doesn’t have to own property while in the service; he can focus on other passive income streams like business and creativity.
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Reverse your mortgage. You can also perform a reverse mortgage to convert your real estate into dividend portfolios.
If your kids prove they can handle their finances well, a dividend portfolio may be cleaner than leaving one home that someone has to manage.
The maximum reverse mortgage is close to $1.1 million in 2023. Splitting that three ways can easily be $300,000 in a dividend growth or income-producing portfolio.
If you know your home will require a lot of maintenance or upkeep, then it may be easier on the family to leave dividends instead. It all comes down to how you foresee the future.
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Conclusion. There are even more ideas, like setting up your home as a business and running an Airbnb.
How about one of the kids moves in and rents the rooms? The rental income can go to the other kids. That way, one person has a place to stay, and the other kids get passive income from rent.
The ideas are endless, but it all takes education and teamwork. Families can be tough to negotiate when huge sums of money are at stake.
That is why you need to talk like a CEO running a family business. In fact, your family is your business.
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You can get everyone on the same page. If one person rebels, you can set up another resource for them. Not everything that is fair is equal.
Ultimately, owning real estate is a powerful way to get and keep your family ahead. However, maintaining your family’s vision takes a lot of reading and leadership.
It starts with having a vision and expressing it to your spouse, children, and grandkids. If you keep reinforcing your principles, they will fall in line. From there, your family will reap the benefits of generational wealth from real estate. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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