How To Build Generational Wealth
You know when you come across someone that’s not only smart but gets where you are coming from? Paris Dean gets it and gets me more than most of my friends that went to school with me lol. I reached out to him on Facebook August 26th, 2020 and said I love this posts, and would he be ok with me sharing EXACTLY what he wrote? He said yes. At this point, after reading this and several others, there’s no need for me to write something like this at this time. Have you ever come across something that was so perfectly written that you wish you wrote it yourself?
THIS IS IT.
Without futher ado.
Disclaimer: This is for learning purposes only. Reading this does not guarantee you will make money.
Guide #4: How to Build Generational Wealth Like A Caucasian
Generational wealth is a hot topic right now because the global spotlight is on racial inequalities. On one hand, it’s great that people are finally talking about the Black-White wealth gap (the disparities between the typical White family’s net worth of about $171,000 and the average Black family’s net worth of $17,150) because it exposes a system that historically has not and does not afford opportunities of economic equality to all its citizens and it opens the door for possible systemic solutions like reparations. But on the other hand, those conversations as a whole aren’t effective because a) the solutions almost exclusively depend on systemic intervention like reparations so they’re unrealistic, b) they’re usually from an academic’s perspective so they’re beyond the average Black person’s pay grade, and c) they don’t give any insight as to what generational wealth is in real figures or how to actually build it so those who may have the potential never get the know how.
But no worries. Because, as usual I got you covered. In this guide we’ll cover:
📖 What generational wealth is in real numbers,
🔁 How to turn a $50,000 investment into a net worth of $1,000,000 in 10 years (with a day job), and
👨👩👧👦 How to Make It Last Forever.
“But I don’t have $50,000!”
See? You ain’t even let me finish. I was just about to say that if you don’t have $50,000, you should check out Guide #1 on How to Flip Money Like A Caucasian (and turn $5,000 into $25,000+ in one year)”
— — — — —
📖 Generational Wealth (in real numbers)
Wealth is a very broad term that can mean a lot of anything like a wealth of knowledge, or a wealth of love.
But I’m talking about money, baby. C-notes. Blue strips. Ben Franks. Cash Rules Everything Around Me: C.R.E.A.M. Get the money. Dollar dollar bills, yall.
Having said that, by definition, generational wealth is any assets passed down from one generation to the next. Those assets can be real estate, stock, a business, or anything else that’s worth something (but a diversified portfolio is the major 🔑). Wealth is a very broad term that can mean anything, so we’ll pin the tail on something round and easily attainable like $1,000,000.
But we don’t wanna leave $1M cash because that’ll only last one generation and once it’s gone it’s gone, so we’ll focus on income generating assets like real estate that will appreciate in value over time, generate money your kids and grandkids can use to supplement their own income, and that can be leveraged to get other things.
The idea is to leave them something they can use to build more wealth.
🔁 How to Turn A $50,000 Investment Into A Net Worth of $1,000,000 (In 10 Years)
Alright. So you have your $50,000 ready. What do you do with it?
1. Buy a property using the steps in Guide #2.
You can get a ~$200,000 house in a nice neighborhood with $40,000 down payment (you’re gonna set aside $10,000 to retain a lawyer). Mortgage payments will be about $1,176 PITI (principal, interest, taxes and insurance) so you can rent it out for $1,500-$1,700 a month.
$1,700 — $1,176 = $524 profit. Save every penny of that for 5 years ($31,440) and live off your day job.
2. Use that money as a down payment on a second property and do the same thing.
Let’s say the second house is $120,000 with a mortgage of $747 a month. You can rent that out for $1,250 a month and pocket the rest ($503). Added to the money from the first property, you’re now at $1,027/month profit.
Let’s recap: 5 years later you have two properties worth a minimum of $356,000 (the first property was worth $200,000 when you bought it but it went up in value 18.24% over the last 5 years so it’s worth $236,480 now…assets!) and you only spent $5,000 out of your own pocket.
3. Buy A Commercial Property
Save that $1,027/month for 5 more years ($61,620) and use it as a down payment on another property but this one should be a commercial property because they’re worth more and you can make more money. Down payments on a commercial property range from 15–35% so you can “afford” anything up to $400,000 depending on the property.
This one isn’t the “prettiest” property but it’s $15,000 below your budget ($385,000), it’s in a decent area with good traffic (location, location, location), and it comes with a 5 year lease from a major tenant, meaning you start making money from Day 1.
Using basic information we can guesstimate that your monthly payment will be somewhere around $1,400 a month.
Commercial leases are calculated by multiplying the square footage by whatever the going rate is (let’s say it’s $10) divided by 12 months, so based on the information we have we can guess that they might be paying you somewhere around $3,800/month, with a profit of $2,400.
Added to the money you already make from the two houses you rent ($1,027), you’re clearing $3,427 a month — or $41,124 a year.
You’ve got 5 years left on your $1,000,000 deadline so let that money stack up and you’ll be sitting on $205,620 cash, plus $3,427/month, plus 3 properties worth at least $875,000 (18.24% appreciation…assets!).
$875,000 in property + $205,620 in cash = $1,080,600 (+ $3,427/month).
You just built a net worth of $1,000,000+ in exactly 10 years.
👨👩👧👦 Now Let’s Make It Last Forever *Keith Sweat voice*
After donating 5% to my nonprofit (because hellooo? Remember me? 😁), taking $50K out for yourself, paying your attorney and your accountant, you’re sitting at about $825,000 + $40,000/year after having only spent $5,000 out of your own pocket. You’re only 10 years older so you could keep going and turn that $1M into $5M, but for the sake of this guide let’s say you’re ready to hand over the keys to your kingdom and let your kids and grandkids handle it.
How should you do it? But first, let’s check for debts.
✅ Well because you started everything properly with the help of an attorney (and retained that attorney), you won’t have to worry about any fines, penalties, or lawsuits.
✅ You won’t have to worry about taxes because there’s no estate tax on estates worth less than $11,000,000, so you’re good there too.
But we’re talking about generational wealth, of which the goal is to make it last forever (and ever), so there are a couple things you should do before handing over those keys.
1. Have your attorney set up what’s called a Revocable Trust.
A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries (people you give the assets to). Trusts can be set up a couple different ways and can specify exactly how and when the assets pass to the beneficiaries. Since trusts usually avoid probate (probate is the DEVIL), your beneficiaries can gain access to these assets more quickly than if you just used a will. Plus, if it is an irrevocable trust, it might not be considered part of the taxable estate, so your estate won’t have to pay as many taxes when you kick the bucket.
You want a revocable trust specifically because it can help your assets (the real estate portfolio, the cash, the income from the portfolio, etc.) pass outside of probate, yet it allows you to keep control of the assets until you do check out. You can name yourself as the trustee (or co-trustee) and keep control over the trust, its terms and assets during your lifetime, but make it so that a successor to manage everything if you get hit by a bus crossing Jefferson.
And if your kids are junior baby a**holes that don’t put some respeck on your name, you can specify that it be a “Generation Skipping Trust”. That’s when you can have it skip your kids and go to your grandkids or their kids.
You’re the boss so you decide what happens with the assets. Those were pretty basic properties, so if you don’t wanna keep them, you can give them permission to sell them (they could be worth between $1,250,000 and $2,000,000 with tenants at that point) and either a) reinvest all of it and let them use the monthly income to supplement their income, b) reinvest half in new properties and use the other half to pay for their tuition, c) sell and use the money to start new businesses or whatever you want (as long as it’s used to build NEW wealth).
Building wealth isn’t hard, it just takes desire to want to be wealthy and the discipline to set a plan and follow it. But unless we have a plan to keep our wealth growing and teach our kids about money, we’ll keep handing down quilts and trauma rather than LLCs and assets.