Historically, systemic barriers like a lack of equal access to credit for homebuying and a lack of access to home ownership have made it difficult for Black families trying to overcome the racial wealth gap and build generational wealth.
JPMorgan Wealth Management provides resources to help Black, Hispanic, Latino, and everyone to “learn about investing in their future legacy.”
When considering how to build generational wealth, real estate investment is one pathway Black families can pursue. Home ownership is another.
This investing for beginners guide defines and provides examples of real estate investments, while also discussing their benefits and risks. It also explores how members of the Black community can build generational wealth with homeownership.
What Is Real Estate Investing?
Chase Bank defines real estate investing as “the purchase of property with the goal of returning profit.” Examples include:
- Investing in rental properties, like buying a vacation home and renting it out or purchasing various properties throughout a city and renting to multiple tenants as a landlord
- Investing in a real estate investment trust (REIT)
- Investing in a real estate investment fund
- Buying a house that needs work for a low price, fixing it up, and then selling it to make a profit (aka house flipping)
- Buying land for residential, farm and livestock, or for commercial purposes (including vineyards)
Benefits and Risks of Real Estate Investing
Buying an investment property with the hopes of generating income carries benefits and risks.
Benefits include:
- Increasing cash flow with rental income
- Investment property value may appreciate over time
- Generates tax-deductible expenses like property taxes, mortgage interest, and advertising costs, to name a few
- Diversifies an investment portfolio
Real estate investment risks include:
- A down housing market may keep potential renters or property buyers away, and the investment property’s value might drop.
- Repair and maintenance expenses can be timely and costly, and offset an investment property’s income.
- Liability issues include personal injuries of tenants while on the property, lease violations, and being responsible for property damages.
- High vacancies may stall or stop income streams.
- Managing tenants and resolving issues can be timely, costly, and stressful.
Any of these issues can also hinder income goals and increase investment ownership expenses.
Real Estate Investing for Black Families: Exploring Systemic Barriers
Racial wealth disparities are an obstacle in real estate investing for Black families.
Many systemic barriers have contributed to the racial wealth gap in the U.S., including a discriminatory practice during the home-buying process due to someone’s race or ethnicity called “redlining.”
It included racist covenants in property deeds that prohibited Black citizens from buying homes in desirable neighborhoods and real estate agents racially “steering” buyers to selective homes and preventing them from purchasing others.
The Supreme Court case Shelley v. Kraemer and the passage of the Fair Housing Act of 1968 prohibited these actions.
While these practices are now illegal, Black homeowners living in low-income areas face lower home values, less profit from home selling, and a lack of equity and/or access to a home equity loan.
Black Americans also struggle with access to mainstream banking services for financial support and instead turn to high-interest alternatives like payday lending.
Furthermore, a 2022 Urban Institute study found young adults ages 25 to 29 in major Black communities had significantly lower credit scores than white young adults in the same age group (median score of 582 and 687, respectively).
Low credit scores can result in loan denial or high interest rates on loans, which can negatively impact a person’s credit score and make it impossible to do real estate investing.
How Black Families Build Generational Wealth with Homeownership
Homeownership is a powerful tool for building generational wealth among Black family members.
If Black families have access to quality, affordable housing, they can accumulate wealth via building home equity. To do this, a homeowner pays down the mortgage as the property appreciates.
When a homeowner passes their home to family members upon death, it transfers wealth to the next generation.
Family members who inherit a house from a parent, grandparent, spouse, or other relative can improve their own financial status if they decide to sell the home and use the proceeds to:
- Establish a savings fund and secure financial stability
- Pay off debt
- Start a business
- Pay for college for themselves or other family members
- Supplement retirement income
- Purchase a vacation home or real estate investment property
- Build more generational wealth by passing the home to the next generation of family members in a will or trust
Tapping into home equity for any of the above reasons may also improve a homeowner’s personal finances, putting them in a better position to build wealth. However, using as little equity as possible maximizes the amount of generational wealth to pass on.
Real Estate Investing and Other Long-term Investments
Building home equity and achieving an income stream from solid real estate investments are two ways to build generational wealth. Other long-term investments that can boost wealth include:
- An IRA, 401(k), or employer pension plan
- Stocks, bonds, and mutual funds
- A life insurance policy or annuity
- A family business
Wise financial planning, including making sound real estate and other long-term investments, as well as creating a will or trust, can also help overcome systemic wealth barriers and close the racial wealth gap.
How to Start Building Generational Wealth
JPMorgan Chase is a powerful thought leader among the Black community in the greater Minneapolis area.
To explore real estate investment and home ownership opportunities and learn more about building generational wealth, contact a JPMorgan Wealth Management financial advisor or mortgage officer to schedule a consultation.
