Some people might assume that investments are just about an obsession of being “rich” and living a comfortable life of leisure and luxury. However, for the vast majority of serious investors, this could not be further from the truth. Particularly in real estate investing, the majority of investors are involved for a handful of reasons that most regularly leads back to a common long-term goal: creating generational wealth.
Just being “rich” is not enough. It does not ensure happiness, a meaningful life, or an easy one. Money, in and of itself, is not enough to live for or make a goal. As an investor myself, this has never been my focus. What has and why? It’s building generational wealth, and that is an entirely different thing. Here’s why:
Generational Wealth Rationale #1: It’s About More Than Just You.
Generational wealth is a goal that far exceeds the “me, myself, and I”. Many of my investors, especially family offices, that partner with me on my deals through my company Blue Lake Capital, are doing so because they have a deep and passionate commitment to take care of their families to the best of their abilities.
One of the advantages of real estate investing is that it produces not only passive income on a periodic basis (monthly, quarterly, etc), but also generally provides a significant return when the property is sold at the completion of the business plan. This means that when a parent or grandparent is investing, they are able to take the periodic cash flow profits, as well as the larger end-of-term payout from the sell, and continue to re-invest those funds again and again to create long-term wealth. You can see that this mindset is quite the opposite of being “rich” and spending all these profits on extreme luxuries.
The end goal is to build up enough wealth through smart investing and conservative living to leave the next generation (or two or three) in a position that is far improved from where the investor likely began themselves. While most parents say they hope their children do better than themselves, this is one step that investors use to try and position their children to do so as much as possible. Their goals are not just about them; they are about their grandparents, parents, children, grandchildren, and so on.
Generational Wealth Rationale #2: Leaving a Legacy of Financial Intelligence.
Since generational wealth is not just about the individual investor, it is often a family affair. The aim of this is not to just provide well for their families, but to also equip them with financial literacy and knowledge in how to do so as well. It’s not about simply being “rich” and stepping back to watch their children squander their inheritance; the goal is to equip the next generation to carry on the goal, use the funds wisely, and continue the accumulation of wealth for future generations to come.
The reality is this, of course, does not always happen. Generational wealth doesn’t ensure your children will carry on the same goals and passions an investor has tried to establish for them; free will is after all free will. As a matter of fact, in a report by Nasdaq, “It is estimated that 70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third.”
How do you mitigate this risk and instead equip your family to understand not just why wealth matters, but how to achieve it and maintain it themselves?
Having partnered with a number of multigenerational family offices, here are some steps that I have noted others have used to encourage and equip the younger generations to embrace and carry on the same legacy:
1. Include family members early on and allocate various responsibilities and roles to them, appropriate for their age and skill sets. This will ensure they understand the business of wealth creation from the ground up, and generally results in them having a greater appreciation for the challenges of building out the family funds. This helps family members to recognize this is a business, not a luxury fund.
2. Educate, educate, educate. The family offices that I have seen with family members that share the same passion and goals most authentically have been well educated. This is not to say the only hope for your children is to attend an Ivy League school first (though I am certainly not discouraging that), but the bigger emphasis is that the older generation often shares teachable moments with family members as they navigate their investments. In addition, these families regularly encourage and promote higher education and life-long learning. While anyone can be successful in real estate investing, which is one reason I am very passionate about it, the absolute truth is it requires a dedication to lifelong learning. Families that are able to promote this passion in younger generations, as well as support them in higher education, tend to have greater success in multigenerational wealth.
3. Establish safeguards. While I am not a financial advisor, and this blog is simply my personal opinion and experiences I am sharing with you, another step I’ve observed in successful multigenerational wealth is the use of safeguards. Essentially, these help family members to “earn” their financial knowledge in milestones. This can be done through custodial accounts, beneficiaries, trusts funds with criteria for accessing them, etc. This is not done to hold money hostage from family members, but rather is a safeguard to ensure that as members gain access to control of family funds, they have achieved an appropriate level of maturity, education, and knowledge to do so responsibly.
Generational Wealth Rationale #3: Bring Certainty to an Uncertain Future.
This is not intended to be an opportune scare tactic; this is just a pragmatic statement that was true 100 years ago, and even more today. The reality is that COVID and the global impact it created caused an entire world to realize that life can literally change in the blink of an eye.
I recently aired a podcast episode about how much the “American Dream” has changed, particularly with younger generations, as the desire for financial freedom and true security is greater now than it has been in most people’s lifetimes. It is no longer about finding a good job and staying in it for 30 years; it’s about being secure in your finances, having the freedom to pursue the goals and passions most important to you, and most of all…being prepared for the unknown (for example, a global pandemic).
Generational wealth is a key differentiator in protecting your family. While sometimes being part of the “upper 20%” can come with hostility from those that are not, understandably, it is a very important position to be in when the unknown and unimaginable hits. Unemployment numbers are decreasing, but the reality is that does not mean the same thing as everyone has returned to work. Not at all.
Generational wealth is a resource that can help your family manage through the unknown. It does not mean you are impervious to any of the challenges anyone else faces, as COVID did not select only those with low net worth, but it can provide an extra level of safety and security for your family, as well as position you to aid others in need (which we did, but I am not using this as a platform to brag about it). Generational wealth helps to keep multiple generations with at the very least, their basic needs, secured.
Generational wealth is not just about being “rich”. Real estate investing a successful strategy for building long-term wealth, and that long-term wealth is commonly used by investors to create generational wealth. There are 3 major reasons to aim for building multigenerational wealth. First, it’s about more than just you. Generational wealth is a goal that includes preserving and supporting multiple generations. Secondly, generational wealth creates a legacy beyond wealth – it’s about financial intelligence. By creating multigenerational wealth, you have the opportunity to educate and equip family members, young and old, with critical financial literacy and experience to continue to grow generational wealth. Finally, generational wealth leaves multiple generations within a family in a safer position when the unknown hits. The experience and impact of a global pandemic has taught us that having generational wealth leaves a family in a safer position to ensure basic needs are still met even when difficult times, such as dramatic nationwide unemployment, occurs. Generational wealth protects a family in hard and uncertain times.
Disclaimer: I am not a registered investment advisor, and this is not investment advice. This is just my opinion.
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About the Author
Ellie is the founder of Blue Lake Capital, a commercial real estate investment firm specialized in multifamily investing throughout the United States. At Blue Lake Capital, Ellie partners with both institutional and individual investors to grow their wealth by achieving double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.
A defining factor of Blue Lake Capital’s strategy is founded in utilizing machine learning/artificial intelligence throughout the course of all acquisitions and asset management. This advanced technology enables the company to produce accurate and data-driven forecasting for all assets on a market, property, and even tenant basis. In doing so, Blue Lake is able to lead commercial investments with the full capabilities of today’s technology.
Ellie is the host of REady2Scale , a podcast that highlights honest, insightful, and thought-provoking discussions on the multiple approaches for successful real estate investing.
She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.
Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.