Real Estate as Part of Your Overall Wealth Strategy

By Published On: March 2, 2022Categories: Real Estate, Wealth Building4 min read

Real estate is more than just bricks, mortar, and stud walls. Through disciplined financial planning, these tangible assets can play a creative role in building your wealth. Whether it’s a second home, rental property or remodeling your primary residence – Xennials across the country are appreciating their lives and wealth through real estate.

Below are some ideas to consider before building a real estate investment portfolio.

Decide How Real Estate Fits in Your Overall Financial Plan

To integrate real estate into your wealth strategy, begin with the end in mind. Is your ultimate goal to create cash flow, or are you more focused on capital appreciation?  The answer should inform how you will finance the purchase and what level of additional investment you need to put into the project.

With this objective in mind, your advisor can ensure that your overall investments are properly diversified and that they support your long-term strategy. It’s important to remember that an over-weighted real estate portfolio can affect the success of your financial plan. By thinking of real estate as another asset class – much like stocks or bonds – you can avoid the risk of overexposure.

Determine the Real Cost of a Second Home

When purchasing a second home, you should consider how the following costs will affect your budget:

  • Maintenance
  • Repairs
  • Utilities
  • Property taxes
  • Homeowner’s insurance
  • Mortgage
  • Cost of travel to and from the home

If you will rent your second home, proper planning can help ensure that your expenses don’t exceed rental income. A thorough analysis of property costs in relation to your financial plan can help you decide if a rental property could provide the passive income that you’re looking for.

Also think about what your family will enjoy most.  Will you be happy going to the same destination month after month, year after year?  Or does your family like to experience a variety of destinations?  With the costs of a second home, will you still be able to afford travel to other locales?

If your goal is to purchase a second home for family leisure, sit down with your advisor to project the additional costs of this property. Together, you can analyze whether putting that amount or less into your vacation budget could save you the trouble of owning a second property while meting your family’s shared wish list of vacation destinations.

Be Strategic About Where You Buy Property

Lower property costs in another state can offer an opportunity to diversify your portfolio and build wealth – but will affect your taxes and estate planning.  In some cases, it could even outweigh the savings.

By working with your tax, legal, and financial team, you can make a strategic decision and create a comprehensive approach that supports your plan. This could mean placing the home in a revocable trust or an LLC to minimize your tax liability and facilitate legacy planning.

Inheriting Real Estate with Your Siblings

As parents grow older, many Xennials prepare to inherit real estate. While this gift is a blessing, it can also create emotional conflict between siblings who are also coping with the loss of a loved one.

To make an inherited asset part of your overall wealth strategy, it’s important to decide how you and your siblings will share the house. Before setting up an agreement, talk to your advisor about how this will affect your financial plan. The options could include establishing an expense account to cover the costs, creating a plan to rent the home and split the profits, or renovating the space to convert it into two apartments.

If sharing the home is not an option, you can consider structuring a buyout or selling the home and splitting the profits. Discuss these ideas with your advisor to understand how they may affect your finances, as well as the tax implications. Selling the home shortly after inheriting it could help you avoid capital gains taxes and use the proceeds to support your existing financial plan.

Make Real Estate Part of Retirement Planning

Understanding the true impact of real estate on your financial picture is keenly important as you plan for retirement, even while you’re still young.  When the time comes, your advisor can help you decide if it’s best to liquidate your primary residence or your second home. You can also get a sense of what downsizing means for your budget and taxes. This can inform your decision on how to invest that money as you approach retirement.

As financial planners, our goal is to help you make big decisions throughout your life. For many Xennials, real estate is a path to wealth building they have seen work well over time. Our role as advisors is to help balance that enthusiasm with financial prudence and long-term planning for your personal situation.


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