Your Kids Won’t Want Your Real Estate
If your portfolio isn’t built to last
You’ll spend the better half of your life building a real estate empire that your kids won’t want to inherit.
This is the reality that most investors are psychologically running from.
Parents will always believe that they know their children better than they (their children) know themselves.
And us investors will always presume that everyone wants to collect mailbox money in exchange for maintenance requests and tenant complaints.
It’s been like this since the beginning of time.
But it’s a new day.
We’ve entered the age of “fluidity”.
An era in which convenience and freedom reign supreme.
Most late-’90’s millennials and early-2000 Gen Z’ers don’t want to unclog their own toilet or mow a lawn; let alone do it for someone else at a rental property that got tossed on their lap.
They want to click a button that makes their to-do list disappear, and a remote job that allows them to work from their computer at a coffee shop in Denmark.
Not many have the stomach to fire contractors face-to-face on a job site.
Or the patience to sift through piles of utility bills every month.
So what does this mean for us aspiring wealth-builders and legacy-leavers?
Do we abort the mission altogether?
Scrap the rental properties, and start stacking savings bonds in our kids’ name?
No shade to the paper-traders and bond-barons out there, but that just wouldn’t scratch the generational wealth itch for me.
It doesn’t feel “tangible” enough.
So I’m sticking to the plan.
And as difficult and selfless as it is to put every penny of your disposable income toward down payments and Home Depot orders—I whole heartedly believe that you should to.
But here’s the caveat: we HAVE to do it the right way.
Handing over a bunch run down houses and distressed apartment buildings that are saddled with debt and lack any operational systems, is a recipe for disaster.
This is what our kids will run from; and rightfully so.
You’re making them the CEO of a failing company.
If you don’t want decades of sweat equity to be flushed down the drain, then write these 3 things down:
Healthy Debt Ratios
Sustainable Systems
A Robust Network
Healthy Debt Ratios
We’re all tempted to tap into our equity when the opportunities present themselves.
Executing a cash-out-refi or signing up for another HELOC.
But you have to remain disciplined.
Think of it like a diet.
It’s important to be watchful of what we eat and the portions we pile onto our plates.
It’s equally critical that we remain cautious of the of debt we consume.
More debt creates smaller margin for error.
A portfolio that has only a sliver of equity is ripe to fold when the slightest bit of pressure is applied.
Owning all of your real estate assets outright is ideal.
Passing down a bunch of properties that are free and clear of any loans would be the best case scenario—but it’s not the most realistic.
A healthy LTV (Loan To Value) is 65% or less.
If your portfolio is sitting anywhere below 50%, it’s in impeccable shape.
Sustainable Systems
Initially, we’re operating based upon instinct.
Problems arise, we scramble to find a solution.
We’re overcoming obstacles for the very first time.
Eventually, we transition to a “memory-based operation”.
We’ve put out a few fires, but we never document where the water hoses and fire extinguishers are located.
All emergency planning is locked away in our brains with no way for anyone to access the key.
This can’t go on forever.
It’s imperative that we take the time to create sustainable and adoptable systems.
There should be very little surprise potholes.
By the time our children make it to the driver seat, we’ve already been around the block countless times.
We should be able to hand them a road map that tells them exactly where to turn in order to avoid the road blocks and pitfalls that we encountered.
Robust Network
Real estate is a team sport.
We know that it’s nearly impossible to scale and sustain a sizable portfolio all on your own.
Siblings or not, your children can’t keep the train on the tracks without the occasional help of others.
Whether it’s a plumber that came out and fixed a leaky faucet.
An electrician that rewired an entire building for you.
Or a capital partner that funded a few deals.
Save everyone’s contact information and take copious notes.
Over time, you will amass a telephone book full of vendors and resources for every need imaginable.
Your children won’t be faced with blindly trusting contractors and service providers.
They’ll know exactly who to call and where to go regardless of the situation they find themselves in.
You have to remember that the real estate portfolio you’re slaving away to build, maintain, and leave behind for your children—and hopefully grandchildren—is a business.
And if you don’t structure it for success—it will fail.
So be intentional.
Remove yourself from the bird’s-eye view perspective, and place yourself in your kids’ shoes.
Think back to everything you didn’t know years ago. All of the knowledge, know-how, and expertise you’ve accumulated over the years.
With this in mind: don’t just dump the building blocks on them, give them the tools as well.
Equip them with everything they need to continue what you’ve started.
Otherwise, the real estate empire that bears your last name will be pawned off to a sketchy wholesaler that has a “we buy ugly houses” sign hanging off the side of the freeway.
Don’t let that be the end of your chapter.
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