Updated: Mar 28
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.”