People invest for an array of reasons, but chief among them is the desire to secure comfortable and stable futures for their families. Wealth secured for future generations––one’s children and children’s children––is known as “generational wealth,” and it allows one to shape the quality of the educational, economic, and social opportunities available to future generations. Building generational wealth, however, takes prudent and careful investing. For many, real estate is an enticing investment option for its unique and lucrative benefits such as cash flow, appreciation, and leverage.
Unlike other investments, such as stocks, bonds and CDs, where quick returns are rare or nonexistent, the returns from a real estate investment property are immediate, steady and build wealth over time. In real estate, it’s called cash flow, the return on investment in the form of rent after the mortgage and expenses have been paid. Today’s market provides incredible investment opportunities with great cash flow potential. In fact, rent prices increased 5.1% nationwide from 2011 to 2012, while interest rates and the median existing home sales price remained low, providing investors with even greater cash flow returns.
While one should always invest for cash flow, appreciation is still a very lucrative benefit of real estate and an incredible opportunity for investors looking to secure long-term, generational wealth. The real estate market has long operated in cycles of rapid and slow appreciation, and even with the recent fluctuation in the housing market, median home prices have still risen at a rate of 5.2% every year when adjusted for inflation. That means a home purchased in 1969 for $21,800 (which was the median sales price that year), would have been worth $172,900 at the end of 2010.
With real estate, investors also maximize the power of their investment dollars by leveraging their money. Generally speaking, leverage is any technique that increases gains. In real estate, an investor leverages her investment dollars as a down payment for a property, so as the property appreciates, she earns money on the full value of the property, not just the original payment.
For example, if you leverage $20,000 as a down payment on a $100,000 property, as the property appreciates, you’re earning a return on the full $100,000, rather than just the $20,000 invested. Leveraging this way allows an investor to get as much as four to five times the buying power of each dollar.
Considering all the advantages, real estate is one of the best investment vehicles for building generational wealth. However, when considering investing in real estate, it is crucial that you partner with an agent who has the knowledge and tools to find the property that suits your specific needs and goals. Certified Investor Agent Specialist (CIAS) agents are trained in serving investor needs and can help you find your next investment property.
By investing carefully and for the long-term, you can build a financial legacy and ensure that future generations of your family have secure, comfortable futures and increased opportunities available to them.