Role of Real Estate in Creating Generational Wealth

According to Congressional Research Service data from 2022, less than 60% of American households had retirement accounts. College graduates and households with annual incomes greater than $100,000 were much more likely to a retirement savings plan invested in stocks or mutual funds. Nonetheless, less than half of these households with retirement plans expected to have enough money to live comfortably after they retired from the workforce.

Despite the media’s obsession with the “affordability crisis” in America, almost 66% of American households owned their primary residence as of January 2026 according to the U.S. Census Bureau. This level of homeownership is only slightly below the nearly 70% peak ownership in 2004. According to the same survey, the percentage of owner-occupied homes owned without a mortgage rose from 34.4% in 2014 to 39.4% in 2024.

As of the first quarter in 2026, homeowners in the U.S. held a record $17.9 trillion in aggregate home equity. The average homeowner with a mortgage currently holds approximately $310,500 in equity across 56.7 million mortgaged residential properties. Hence, this remarkable amount of equity has transformed homeowner equity into one of the largest sources of household wealth in the United States. This accumulation of equity was a result of several decades of home-price appreciation and principal repayment.

According to Warren Buffett and other successful investors, a home mortgage is considered an excellent use of leverage because it allows individuals to invest in real estate with a relatively small amount of capital for the down payment. A conventional 30-year fixed mortgage allows owner-occupants to buy a home and make the same principal and interest payments while the property typically increases in value over time. For this reason, Buffett described home mortgages as “the best [financial] instrument in the world” and “a “one way bet” that offers homeowners unmatched flexibility and exceptional risk management benefits.

Buffett’s “one way bet” affords homeowners the option to refinance a higher fixed rate mortgage to a lower interest rate mortgage when interest rates drop, and the option to maintain the current fixed interest rate mortgage whenever interest rates rise. For example, when mortgage interest rates dropped to an historically low 3.0% in 2022 over 65% of all homeowners had mortgages below 4.0% and 25% had mortgages interest rates below 3.0%.

Obviously, these extremely attractive low interest rate mortgages motivated prospective homebuyers to compete aggressively for the limited supply of homes on the market, which caused an historic surge in home prices during 2020 to 2022. It was logical for these homeowners with exceptionally low fixed mortgage interest rates to feel “locked into their homes” when inflation surged to 9.0% and interest rates rebounded.

The home mortgage industry eventually complained the “locked in effect” prevented households from selling their starter homes to upgrade to larger homes. Homeowners postponed improving their quality of life because of their desire to hold on to their exceptionally low interest rate mortgages.

There may be other reasons for the apparent freeze in the real estate market that brokers and mortgage lenders failed to consider. Many members of the greatest generation and their baby boomer offspring aspired to live mortgage free during their retirement years, so they chose to remain in the family home while making improvements to their property to accommodate grandkids and to age in place. The sudden increase in their home equity since 2020 created unexpected capital gains tax consequences for owners of properties that became worth in excess of $1 million.

Homeownership and Generational Wealth

With the exception of owners of successful small businesses and the growing number of high net worth and ultra-high net worth households, the gradual accumulation of equity in the family home can become a significant asset for most middle-class families. Due to laws that allow transfer of an inherited home to the children at the “stepped up basis,” the accumulated equity is sheltered from capital gains tax. Hence, this transfer of the parents’ equity is intended to pass tax-free to their children. Oftentimes, this substantial home equity provides the foundation for the next generation’s financial security.

It’s been said that generational wealth begins with someone who is crazy enough to believe it’s possible, and to take the risks to make it possible. Generational wealth refers to assets that are transferred from one generation to the next. These assets may include:

• Residential homestead
• Investment properties
• Farm or ranch land
• Savings and investments
• Family-owned businesses

Unlike income earned from employment, generational wealth enables one generation to create a legacy that provides future family members with financial resources that may help support housing, education, retirement, or other long-term goals. Financially savvy beneficiaries often leverage their inheritance to purchase their own primary residence as well as invest in the stock market, income producing real estate properties, or a family-owned business.

In 2012, Warren Buffett told a CNBC interviewer, “If there was a way to buy thousands of single-family homes at once, and to manage them easily, I would load up on low interest rate mortgages to do so.” However, the illiquidity of homeownership, the inability of investors to qualify for 30-year fixed mortgages (at that time), and the difficulty managing the properties caused Buffett to pursue investments in quality businesses with a large moat that produced consistent income.

Conversely, Rich Dad, Poor Dad author Richard Kiyosaki often boasts that he owns approximately 15,000 homes with mortgages. Kiyosaki borrows against the accumulate equity in these homes to purchase additional properties and shelters all the rental income from taxes by paying interest on the loans, management expenses, and improving the properties. Nevertheless, Kiyosaki warns his audience that his aggressive approach requires considerable knowledge, expertise, and risk tolerance.

Residential Real Estate Investments

Investing in residential real estate seems to be the most common path followed by most middle-class Americans. However, successful landlords do more than passively list properties and collect rent checks. They must understand their local market, budget for usual and unexpected expenses, manage tenants, accommodate vacancies, and develop strategies to maximize their cash flow and appreciation. For single-family homes, far and ranch land, and smaller multi-family units, landlords shape the rental landscape in America.

According to data from 2024, approximately 9.7 million landlords own almost 70% of the rental properties in the U.S. Landlords own 18.2 million rental units (1.89 units per household). The vast majority (88.5%) of landlord-owned properties are single-family units. Surprisingly, among rental properties with individual landlords, 80% are owner managed. Despite reports in the media regarding the high cost of housing, 78% of property owners raised rents 6.21% in 2025.

Most independent landlords become investors in residential rental properties through a combination of personal motivation, opportunities in the market, and long-term financial and estate planning. Regardless of their motivation, all landlords tend to follow the same essential steps: 1) personal motivation, 2) response to market trends, 3) initial property purchase, 4) property management, 5) investing strategies, 6) continuous learning, and 7) maximizing tax advantages.

In 2021 there were 9.6 million independent landlords in America. Between 2021 and 2024 a net increase of 82,367 more Americans became landlords. Among these entrepreneurs, 98.2% owned rental properties that were less than 5 units. In may states like Texas, multi-family properties with 5 or more units were classified as commercial real estate investments.

The value of commercial investments and larger multi-family rental properties are is determined more by the income they produce than the cost of construction or the replacement value plus the value of the land. Although the potential profits for commercial investments can be greater due to economies of scale, the risks for loss are also greater. Hence, these investments are more suitable for experienced real estate investors.

Becoming a Real Estate Professional

 Obviously, a licensed real estate agent or broker whose primary source of income is derived from managing real estate transactions and properties would qualify as a real estate professional from the perspective of the Internal Revenue Service. The ORS also recognizes a non-licensed owner-landlord as a real estate professional if they devote more than 750 hours each year to managing their own properties, and it is their primary source of income (independent of a spouse’s income).

Every owner of rental properties can deduct their expenses against the rental income from the properties. The advantage of one member of the owner-landlord household being a real estate professional is that losses in excess of the rental income can be deducted against the earned income of the primary bread winner in the household.  Investors who intend to pursue this option should seek advice from their accountant to determine the requirements and tax advantages that may apply to their specific circumstances.

Real Estate and Generational Wealth Creation

For anyone who’s lived through the past decade, it would be hard to see ownership of real estate as anything but a big win!  Housing values have risen for nearly 15 years, just about doubling in value nationwide since 2015. So, it’s true that owning a home can help a household build wealth over the long-term. Some people view homeownership as a “forced savings” program because households are compelled to pay their mortgages whereas they may not be motivated to contribute regularly to a savings account.

Assuming no one chooses to be homeless, so housing can be viewed as a pure expense if rented, or an accumulation of equity if owned. Homeownership increases value through reduction in the balance of the mortgage loan, the property also increases in value due to appreciation after a decade or more.

As stated previously, it’s the role of mortgages that makes residential real estate an accessible way for households to build wealth. Imagine a typical family that purchased a home for $200,000 in 2015. A decade later it’s worth $400,000. But, unlike a $200,000 investment in stocks, they didn’t have $200,000 in cash to get started – probably just $40,000 for the down payment. The mortgage lender provided most of the initial investment, but the homeowners benefitted from the increase in value of the property.

While it’s impossible to calculate the effects, the emotional benefits of homeownership can also have a positive impact on the security and stability of the household. By achieving this traditional cornerstone of the American Dream, and watching the household’s net worth grow, it can inspire the family members to continue saving and motivate them to reach other financial goals.

One of these altruistic goals may be to use real estate as a tool to create generational wealth. This kind of wealth exceeds the accumulation of wealth to support a comfortable retirement. It is an excess of wealth that provides financial security to future generations. Real estate investments have the unique ability to grow in value, produce income, reduce income taxes, and transfer tax-free from one generation to the next – the backbone of generational wealth creation.

Strategies for Creating Generational Wealth

Ideally, households that aspire to accumulate an excess of wealth through real estate and pass it to future generations should consult their financial advisor, accountant, and estate planning attorney before they purchase their first property. Every household has unique considerations and skills that may benefit from a specific estate planning strategy.

In general, the process of using real estate to accumulate and transfer wealth to future generations should be undertaken with the idea that the household is starting an actual business that requires relatively constant attention by at least one family member. A tyocial strategy includes:

• Purchase Starter Home
• Learn and Form Business Plan
• Leap Frog to Second Home
• Invest in More Rental Units
• Create an Estate Plan

Every family is different. More importantly, family dynamics change as children become adults, get married and form their own families. Oftentimes the experiences and opinions of spouses will pull the adult children in different directions that do not blend with the original estate plan. Therefore, it is essential to involve adult children and their spouses in the estate plan, educate them about the benefits of the real estate benefits, and impress upon them the importance of perpetuating a family legacy. Transparency is the best strategy for minimizing future conflicts among siblings.

Use Generational Wealth to Strengthen Family Relationships

The creation of generational wealth involves more that the accumulation of money – it’s about stability, opportunity, and family legacy. Generational wealth must have a purpose. Ideally, that purpose is to motivate adult children to work together to provide financial security for future generations, which will enable them to perpetuate the family’s values and make a difference in the lives of others.

Estrangement of adult children from their parents seems to be a growing trend in American society. Experts opine that this estrangement begins during adolescence when young people feel neglected by parent who are distracted by their efforts to prioritize the accumulation of wealth over the perpetuation of family relationships.

C.S. Lewis wrote, “Children are not a distraction from more important work. They are the most important work.” In this regard, parents must remember that their values provide the foundation for generational wealth. The business they build will not survive unless the children felt they were safe, seen, and loved in the presence of their parents.

Parents must find a balance between wealth accumulation and the creation of a stable family. Children should become involved in the “family business” very early so they develop a sense of ownership and personal responsibility. Parent should explain how a single residential real estate property today will eventually become:

•  A valuable mortgage-free asset
• Provide decades of rental income
• Create equity for leveraged investments
• Educational opportunities for children
• Entrepreneurial freedom
• Financial independence
• Tax advantages

The most important message parents can pass on to their children is that real estate rewards patience, planning, and consistency. It is also wise for them to communicate the importance role that real estate plays in perpetuating the family legacy – that responsible parents provide for the health, safety, and well-being of their children and future generations to ensure their eventual success and happiness.

George can provide prospective sellers and buyers of luxury real estate with his lived experience in the creation of generational wealth. George also completed a 2-year curriculum in financial and estate planning so he can share his unique perspective while assisting clients develop their own strategies for incorporating real estate into the creation of generational wealth for their family.