how to make generational wealth ?

Question

I might sound naive for asking this, but how can you actually make money through buying and renting properties?

Here’s what I mean — mortgage rates are already quite high, so after buying a property and renting it out, it seems like there wouldn’t be much profit, or even negative cash flow. I just don’t see where the profit comes from.

In some cases, it even seems better to just rent a place rather than buy one and try to resell it a few years later.
Is this situation going to stay like this forever, or can we expect things to improve in terms of cash flow?

Jonathan Taylor Smith · Answer

@Tom Hall - My $0.02 on your question is that you appear to be considering only ONE of the FIVE ways that you make money from Real Estate Investing... Cashflow is just 1/5th of the profit puzzle. And you are not always going to be positive on all 5 ways at the same time or consistently. So you must also consider: 2. Appreciation (Forced or Organic); 3. Tax Benefits (Depreciation); 4. Mortgage Paydown (Amortization); and 5. Dollar Shorting (Inflation). And none of these payoff overnight. That is where the saying comes from "Don't wait to buy Real Estate; buy Real Estate and wait". If you are positive on just 3 of the 5, ten years later you'll be happy that you bought, largely regardless of the interest rate at the time of purchase. Plus, you can cure negative cashflow by putting more down. And BRRRR investing is a way to force appreciation and tax benefits in your favor more quickly.

Nicholas L. · Answer

@Tom Hall

you're exactly right about cash flow.  but as others noted, there are other ways to make money.  i just did a BRRRR - i'm refinancing now.  it will break even when i'm done.  but i got all my capital back.  so my tenants will pay for that property while i use the depreciation to offset taxes elsewhere.  and then i'll own it free and clear eventually.

does that help?

Josh C. · Answer

@Tom Hall

As others said, it takes time, unless you bought something way under rented or right before that neighborhood gentrified it will be a while.

Rents do go up, but so do property taxes and insurance and maintenance.

Mortgage pay down and appreciation will be your biggest friend long term to change your life. If you want generational wealth, but tons of real estate in your 20 and 30s and sell it in your 50-60s.

If you want cash now you have to be extremely involved doing your own management and maintenance. That’s the only way to see real life changing cash flow without starting out with millions for down payments. My first 9 years of my marriage my wife and I lived in 12 different places fixing them up and selling or renting them. Very hard, but very worth it today.

Henry Clark · Answer

OP read the first response above.  Lots of ways to make money today.

Your title says Generational Wealth which is different than your discussion.  Until you develop your REI strategy don’t worry about Generational Wealth.  If you still want to worry about generational wealth let’s say you need to scale to $10mm in today’s dollars.  Thus your REI strategy needs to achieve that.

As a beginning investor,your housing will always be the best investment.

Interest around 7% is normal.  It’s not high.

You’re in NYC based on your subtitle.  With everything going on there, great time to invest there.

You have to be prepared to invest yourself.  As one of the posters noted.   It’s not free.  You have to build your initial cash snowball.

You want to be worth $1.5mm by the time your mid 40’s, be worth $4mm by your mid 50’s?  Join the military and invest in REI.

Lots of angles.

Denise Supplee · Answer

Hi @Tom Hall, The current environment may feel challenging, but it’s cyclical, rates, rents, and opportunities will change. The key is learning how to analyze deals carefully, choose the right markets, and plan for the long term so you can build wealth steadily rather than expecting quick flips. Also consider other types of investing,  diversify.

Theresa Harris · Answer

Interest rates are not high-they are about average (higher than the last 10 years where they were extremely low).  If you are talking about generational wealth, you are looking at long term-you won't have a mortgage on the home forever.  You are also building equity through increasing house prices.

One part, not related directly to real estate, is managing your money.  Always spend less than you make and think about what you are buying-the old saying, watch your pennies and the dollars take care of themselves is true.  Don't worry about keeping up with the Joneses (because they are likely up to their eyeballs in debt).

Marcus Auerbach · Answer

Real estate is really about equity (and generationsl wealth). We have seen a cash-flow anamomy 2010-2020, but that's over and we are back to what is historically normal: real estate is not very good at cash flow. Just look at a BP calculator at the 10 year or 30 year mark: money is made with equity, cash flow is just to keep the lights on.

I can tell almost anyone how much their cashflow is if I know what their equity is: its always about 7%. If you want to increase your cash flow, you need to grow your equity, which BTW is also your generational wealth.

Alfath Ahmed · Answer

I've been pretty successful at it alongside my investors in acquiring properties strategically. We make sure that we aren't buying even turnkey deals at market value. If you can buy property 20% below true market value then you can always re-sell in 1-2 years and be profitable.

It's just a shorter version of the BRRRR method, without actually having to do work but tying up capital. Cashflow is very hard to attain in real estate. Even if you are cashflow positive, as you mentioned, there are expenses. BUT if you have a long term vision, and understand what you are buying you can make a ton of money.

Alfath Ahmed · Answer

If your market is appreciating, then it is still worth it to buy. Today's prices and today's prices. More than likley in 10 years home values will be a lot higher than what it is today.

You can lock in the price and can always re-finance to get the better rate. If you are very concerned about that, then I would just flip single family homes or doubles, or I personally like to do brrrr deals.

how to make generational wealth ?

Most Popular Reply