Wealth Building Real Estate

[Don Konipol]

WEALTH BUILDING thru real estate investment was a specific strategy originally popularized in the early 1960s.  It was an outgrowth of Richard Reno’s transforming his commercial real estate brokerage from the traditional model to one concentrating exclusively on real estate exchanges.  Reno completed exchanges involving as many as 23 participants!

The premise of “wealth building” in real estate is that the investor consider any transaction, deal, etc that INCREASES their net worth (wealth), given an acceptable level of risk.  An example would be when offering a property you own for sale.  Most of us would put the property on the market as a cash (to us) transaction.  But, someone committed to wealth building would analyze whether their wealth could be increased further by offering the property for sale with seller financing.  In many instances a significantly higher sale price can be obtained this way, often paired with an above market interest rate of the note.  This is because the seller is opening the sale to a much larger number of potential buyers; possibly “users” rather than just investors, and eliminating cost and red tape in buyer’s obtaining third party financing.  If the seller can “wrap” the new note around  a lower interest rate existing note, the wealth created can be even greater. 

Of course nothing is “absolute”; the astute investor will need to also compare the wealth increased by simply holding on to the property; holding and improving the property; and selling the property for cash and reinvesting the proceeds.  The major point is that the investor is continually evaluating their options as to each property they own, property they can buy, cash position, etc., with maximum wealth creation as the goal for every decision. 

I’ve used a less “intense” version of this throughout my real estate career.  I’m interested in learning from other investors who used “wealth building” and investors who haven’t - let us know what you think about it and your experiences. 

[JD Martin]

I'm generally a subscriber to "hold until you die", but I'm not dogmatic about it. It's all about what can I do with this money that's more profitable and equal or less risky and equal or less work than what I'm doing now. The profitable part has to take into account a lot of factors, including your age, tax considerations, skill set, investment options, heirs or lack thereof, income requirements, and so on. If I sold everything tomorrow and put it all into stocks - even a mutual fund - that would be less work than what I'm doing now, probably somewhat more risky than what I'm doing now, and probably less profitable than what I'm doing now since I bought (mostly) at a time where I can still see 20% annual returns, and it's pretty unlikely I could match that without really getting out on a limb. To do better I'd have to have some real specialized skill and knowledge like @Jay Hinrichs with timber and land sales.