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Building Generational Wealth with Real Estate Investments

January 17, 2024
Lyric at Norton Commons patio and courtyard

We try to pass on our knowledge to future generations. Passing on our financial legacy can feel more complicated.

Navigating complex tax strategies and deliberate portfolio creation can seem overwhelming, but at Capital Square, we simplify and streamline the conversation so that more investors can understand the benefits of tax-advantaged real estate investments. We help investors accomplish their financial goals by including real estate in the mix. Each investor is unique. Some are seeking financial freedom to travel, put their kids or grandkids through college, help with a home purchase or to start a business. Through real estate investments, Capital Square can help investors accomplish their financial goals to satisfy their life goals.

Four Strategies for Building Generational Wealth with Real Estate Investments

1. Invest in Multifamily Real Estate.

Through real estate investment vehicles like Delaware statuary trusts (DSTs), investors can not only access real estate they would not otherwise be able to afford on their own, but they can also receive passive income. Contrary to an individual real estate owner’s active management of a rental property, fractionalized ownership of real estate through a DST also has the advantage of the DST sponsor – not the investor – acting as the active manager of the property.

In addition to potential passive income and appreciation from real estate ownership, those who invest in DSTs via a Section 1031 exchange defer capital gains taxes through their investment in “like-kind” property, and this tax deferral becomes full forgiveness when passed on to the next generation at the end of one’s life.

Furthermore, by investing in multifamily real estate, such as apartment or build-for-rent communities, an investor is focusing on the most stable, recession-resistant, inflation hedging asset type, as well as an asset type likely to see long-term growth. Housing is an essential commodity. Moreover, higher housing prices and mortgage rates have pushed even more people toward the rental market, which has increased demand in recent years and is expected to remain in-demand for years to come. Multifamily real estate investment is a long-term strategy with historical strength and legacy-building potential.

2. Invest in Real Estate Investment Trusts (REITs).

Rather than investing in a single property, investors can also invest in a real estate investment trust (REIT), which contains a larger portfolio for greater diversification. By investing in a REIT with a more diverse portfolio of properties, investors are able to reduce concentration and market risk.

The most successful REITs also deliver dividend-based income and substantial total returns through rent growth and asset appreciation; growth potential from economies of scale through enhanced operating and tax efficiencies; increased transparency with additional oversight by independent directors, analysts and third-party auditors; an infinite length of ownership that the investor can control; capital preservation; and impact creation, building legacies for investors and communities.

Multifamily-focused REITs, much like DST structures, have been stress-tested and proven to be solid, even during periods of economic turmoil.

3. Invest in Opportunity Zone Developments.

Each of these tax-advantaged real estate investment strategies can have a profound impact on future generations; opportunity zone development funds also provide significant tax benefits to investors while also creating positive impact in local communities.

Opportunity zones were created as part of the Tax Cuts and Job Acts of 2017 to stimulate long-term private investments in low-income urban and rural communities nationwide. Investors benefit from tax-deferral and exclusion. When capital gains from the sale of any asset (e.g., stocks, bonds, real estate, businesses, artwork, etc.) are reinvested in a qualified opportunity zone fund, capital gains taxes are deferred short-term and entirely forgiven from fund appreciation if held for at least 10 years – all while potentially delivering favorable returns.

4. Consider how 401Ks and IRAs Can Roll Over into Real Estate Investments.

Investing in 401Ks and IRAs are established strategies to think about the future, and that future may be improved when all or a portion of these retirement savings accounts are rolled over into real estate. Financial advisors can be valuable partners when examining strategies, such as self-directed IRAs for real estate, to help find the optimal solution for investors.

Financial legacies can be passed on to future generations and improved by including real estate. In this way, investors can accomplish their financial goals, with greater tax efficiency, to satisfy their life goals for generations to come. Building generational wealth with real estate is a complex undertaking, but the ripple effects of your thoughtfulness today can linger for many generations into the future.

Learn more from our team’s real estate investment insights, including what to consider after inheriting a real estate investment. For more information regarding available investment offerings, please contact your registered representative or our Capital Square team.

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