I’ve been an investor in real estate since 2005, and I’ll admit my timing wasn’t the best….you see, I got in a couple years before the financial collapse in 2008, so I likely overpaid for my first properties. Yea, I know, I too have questioned my decision, but that didn’t come until later. However, I’ve weathered the storm and even added properties to my portfolio since then, because I saw how possible it was to create generational wealth through real estate investing, and as of the writing of this post, I’ve been able to do just that.
To pay homage to all the ups and downs of my real estate investing career, I’ve put together 10 strategies that you can use to build generational wealth through real estate investing.
I owe it to real estate investing, it’s been good to me!
I still believe that buying and holding real estate is THE path to building generational wealth for anyone with a ‘9 to 5’, looking for a semi-passive investment strategy as a means of complementing investments in Stocks, Bonds, Precious Metals, or Digital Currencies.
But I also get, that directly Investing in real estate is not for everyone, it does involve dealing with people, maintenance, insurance, and taxes. And for some, that is untenable and I get it. For the rest of you who haven’t ruled it out, on we go.
Buy and Hold Rental Properties
One of the most common and reliable strategies in real estate investing, is buying and holding rental properties. The idea is simple: purchase residential or commercial properties and rent them out to tenants.
When done correctly, assuming your expenses are less than your income, then part of the rent payment goes to building an equity position and part goes into your ever-expanding wallet.
This is what I’ve done since 2005. I currently have 5 properties; one is a Short-Term Rental, the other 4 are occupied by full-time tenants.
Since 2005 with all the properties, I’ve estimated to have had 48 days of vacancies the entire time. So, its worked out well, and it can for you too.
In an age of sky high interest rates and low inventory, House Hacking has become an excellent strategy for folks looking to reduce or eliminate their living expenses while building generational real estate wealth.
This strategy is simple: Buy a multifamily structure, I like duplexes and triplexes, then live in one unit and rent out the other units. When done correctly, your tenants essentially cover your housing costs while you enjoy the benefits of property ownership, and the ‘fattening up’ of your equity position..
To learn more about investing in a duplex, here is a great post on the duplex I used to own.
Real Estate Investment Trusts (REITs)
For those who prefer a more hands-off approach to real estate investing, Real Estate Investment Trusts (REITs) are fantastic options. I’ve invested in Realty Income (Ticker Symbol O) for some time now and it pays a nice monthly dividend.
And, oh by the way…. Realty Income is trading below its 200 Moving Average by 12.23% at the time of this writing, and still pays it’s handsome 6.24% MONTHLY DIVIDEND.
REITs are companies that own, operate, or finance income-producing real estate, and pay out most of their profits in the form of dividends. By investing in REITs, you gain exposure to various real estate markets without the need for direct property ownership.
Here is an image I put together of some other great REITS worth your consideration.
“Cream of the Crop” Publicly Traded REITS
Real Estate Crowdfunding
Real estate crowdfunding platforms have gained popularity in recent years. These platforms allow investors to pool their resources and invest in specific properties or real estate projects. It’s a collaborative way to access real estate opportunities without the need for large upfront capital.
If you want to learn more about Real Estate Crowdfunding, Joe over at retirebyforty, or Sam over at FinancialSamurai both have lots of hands on experience at it, and both would be a wealth of information.
Fix and Flip
If you have a knack for renovation and a good eye for potential, fixing and flipping properties can be highly profitable. This strategy involves purchasing distressed properties, renovating them to increase their value, and then selling for a profit. My experience with a Fix and Flip property was generally positive.
However, that was in 2018.
Today there are challenges which were not as prevalent back when I did my fix and flip. Such as:
- Material costs have skyrocketed
- Contractors are VERY difficult to find, and to have commit to working on your project.
- Inventory is scarce
- Holding costs are up significantly.
Because of these 4 phenomena, I would hold off on Fix and Flips in the immediate future. There will be a great time to re-enter this market in the future, but in my opinion, that time is not right now.
Real Estate Partnerships
Forming partnerships with other investors can open doors to larger and more lucrative real estate opportunities. Pooling resources and expertise allows you to invest in projects that may have been out of reach for an individual investor.
Real estate partnerships can be tricky, because inevitably each partner’s level of commitment is different, which can create a strain on the relationships.
In my opinion, if you’re going to enter a real estate partnership, commit to making the partnership be purely a business relationship. And, I would certainly not recommend doing this with your friend/s.
Short-Term Rentals (e.g., Airbnb)
The rise of platforms like Airbnb has created new opportunities for real estate investors. Renting out properties on a short-term basis to tourists or travelers often yields higher rental income compared to traditional long-term rentals. However, it requires active management and a good understanding of the local rental market.
Our short-term rental experience has been good, and if it weren’t for Hurricane Ian, I’d give it a ‘great’ rating, but the amount of damage Ian did to our complex along with the subsequent loss of rental income, has really left a poor taste in my mouth with Short Term Rentals.
Real Estate Development
Investing in real estate development projects involves constructing properties, such as apartment buildings, office spaces, or housing developments. While this strategy can offer significant returns, it’s typically associated with higher risks and requires substantial capital and expertise.
In this tightening credit environment, the ability to finance projects of this magnitude have gotten more difficult and only puts a greater strain on the investors yield.
For an investor to put their money to work they have to analyze the risk of the project. Ideally an investor will deploy capital to projects which are low risk, with the potential for a higher reward. Right now the yield curve is inverted, risk is high and reward is low. For this reason, along with my lack of experience, I would not be putting capital up for any real estate development projects today.
Real Estate Tax Benefits
Real estate investments come with a range of tax benefits that can enhance your wealth-building efforts. Take advantage of deductions for mortgage interest, property taxes, and depreciation. Consider utilizing 1031 exchanges to defer capital gains taxes when selling one property to purchase another.
My experience with a 1031 exchange was rather enlightening. Come to find out, the moment you receive the check from selling a property, you have 45 days to identify the next property and 180 days to close on said property, or you will indeed pay capital gains tax. So, beware!
Diversifying your real estate investments, like your stock investments, or your crypto investments is a smart strategy for mitigating risk and leveraging your wealth-building potential.
In my opinion, if your’re looking to invest in a real estate venture, it may be best to spread your investments across different property types (e.g., residential, commercial), geographic locations, and investment strategies.
Remember, all real estate is local, so what may be happening in Orange County, California, will be vastly different than what’s going on in Memphis, Tennessee.
In fact here is a post I did on why some cities are better than others for real estate investing.
As an investor, always seek business and landlord friendly environments, and always do your homework. Diversification may be the one thing that has the ability to turn an overall loss into that of a gain.
In conclusion, real estate offers a multitude of wealth-building strategies. Whether you’re interested in rental properties, real estate crowdfunding, or house hacking, there’s a strategy that can align with your goals and risk tolerance.
Remember that successful real estate investing requires thorough research, due diligence, and a long-term perspective. Consult with professionals and consider seeking guidance from financial advisors to make informed investment decisions.
With careful planning and the right strategy, real estate can be a powerful vehicle for building and preserving wealth for the future.