To build and maintain wealth, some families rely on their businesses while others turn to stocks or simple savings accounts. For many who succeed in building true generational wealth, real estate is a crucial pillar of their strategy. Here we cover several key advantages real estate offers to help families create and preserve wealth that can be passed from one generation to the next.
Long-Term Focus with Historically Healthy Returns
Building generational wealth requires channeling capital into assets that generate sufficiently strong returns and committing to a suitably long time horizon. For the most part, generational wealth creation isn’t about winning the lottery or brilliantly timing the stock market’s daily moves—it’s about starting when the next generation is young and making diligent commitments to appropriate assets. In this sense, real estate fits the bill.
Over the long term, real estate has historically provided meaningful positive returns driven by price appreciation and cash flow. For example, a real estate index tracking private open-end funds with lower risk “core” investment strategies has posted an average annual total return of 8.0% since its inception in 1978.1 Moreover, the illiquid nature of many real estate investments requires families to commit to an extended time horizon, which can be advantageous when targeting the goal of generational wealth.
Real estate can also help improve a portfolio’s risk and return characteristics, thanks to the power of diversification. For example, the correlation coefficient between global equities and private US core real estate was 0.0 over the 2008 – 2024 period, meaning the movements of the two asset classes showed no relationship at all.2 Investing in assets with little or no correlation to each other can boost portfolio diversification and reduce portfolio risk. The lower the correlation is between two investments, the greater the benefit of diversification.
The Power of Leverage
To purchase real estate assets, investors commonly use borrowed capital in the form of mortgage debt. As such, real estate offers families the ability to capture the return-boosting benefits of leverage—an advantage not always available with other asset classes.
Passive, Pooled Investment Opportunities
Direct ownership is one way to access the world of real estate—for example, an investor might buy a condo and rent it out, lease your storefront to a retail tenant, or complete a residential fix-and-flip transaction.
Families can also build wealth with real estate through passive, pooled investments, such as private equity real estate funds, publicly traded REITs, and private real estate syndication deals. These investments offer fractional ownership, which can grant individual investors access to larger, higher-quality assets. Furthermore, these vehicles empower individuals to benefit from the expertise of experienced sponsors, and they can help investors diversify their portfolios across a range of assets, geographies, and sectors.
Tax Advantages to Preserve Wealth
Real estate investors have several tools at their disposal to help minimize taxes and maximize wealth, such as the potential to deduct depreciation and expenses directly related to the operation, management, and maintenance of a rental property.
The 1031 exchange is arguably the most powerful real estate tax tool. When an investment property is sold for a gain, investors generally must pay tax on the gain at the time of sale. Internal Revenue Code Section 1031 provides an exception, allowing investors to postpone paying tax on the gain if they reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Plus, capital gains taxes can be eliminated with a step-up in basis to fair market value for the property’s heirs when the owner dies.
The Opportunity Zone program can also create significant tax advantages. Established as part of the 2017 Tax Cuts and Jobs Act, the Opportunity Zone initiative is designed to lift Americans out of poverty and revitalize struggling areas. The program spurs economic development and job creation in more than 8,700 census tracts by offering tax advantages to those investing certain eligible capital gains into Opportunity Zones through Qualified Opportunity Funds. Capital gains generated by the sale of stocks, bonds, cryptocurrency, businesses, and other assets may be eligible.
As it stands today, investors can defer taxes from the original sale through December 31, 2026, or when the investment in the Opportunity Zone Fund is sold, whichever comes earlier. If an investor holds the Opportunity Zone Fund investment for at least 10 years, any capital gain appreciation earned from the Opportunity Zone Fund investment is not taxed upon disposition. This is the most significant tax benefit provided by Opportunity Zones.
Caliber’s Advisor Resource Hub
To learn more about real estate and how Caliber can help investors generate wealth for generations to come, visit our Advisor Resource Hub or contact our team today.
About Caliber (CaliberCos Inc.) (NASDAQ: CWD)
With more than $2.9 billion of managed assets, including estimated costs to complete assets under development, Caliber’s 16-year track record of managing and developing real estate is built on a singular goal: make money in all market conditions. Our growth is fueled by our performance and our competitive advantage: we invest in projects, strategies, and geographies that global real estate institutions do not. Integral to our competitive advantage is our in-house shared services group, which offers Caliber greater control over our real estate and visibility to future investment opportunities. There are multiple ways to participate in Caliber’s success: invest in Nasdaq-listed CaliberCos Inc. and/or invest directly in our Private Funds.
Investor Considerations
The information contained herein is general in nature and is not intended, and should not be construed, as accounting, financial, investment, legal, or tax advice, or opinion, in each instance provided by Caliber or any of its affiliates, agents, or representatives. The reader is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances, desires, needs, and requires consideration of all applicable facts and circumstances. The reader understands and acknowledges that, prior to taking any action relating to this material, the reader (i) has been encouraged to rely upon the advice of the reader’s accounting, financial, investment, legal, and tax advisers with respect to the accounting, financial, investment, legal, tax, and other considerations relating to this material, (ii) is not relying upon Caliber or any of its affiliates, agents, employees, managers, members, or representatives for accounting, financial, investment, legal, tax, or business advice, and (iii) has sought independent accounting, financial, investment, legal, tax, and business advice relating to this material. Caliber, and each of its affiliates, agents, employees, managers, members, and representatives assumes no obligation to inform the reader of any change in the law or other factors that could affect the information contained herein.
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