One investment product which will never go out of style is real estate. The appeal comes from the fact that the supply of real estate will never increase, and demand will continue to grow as long as the population of the planet continues to grow.
According to Spectrem’s annual wealth segmentation study on the portfolios of affluent investors, between 4-6 percent of an investor’s assets are in real estate, not including the investor’s principal residence (which can comprise up to 30 percent of an investor’s total assets depending on wealth), The percentage of real estate assets is actually a bit on the decline over the past couple of years.
“Investors have always used real estate as a hedge against inflation, deflation and outright financial crises,’’ said Spectrem president George H. Walper Jr. “No matter what is happening with investments in other forums, the value of real estate will remain the same and the price is far less volatile than most other forms of investment. “
Real Estate investment is usually designed to be a long-term proposition. The value usually changes slowly over time but it is not a market that suffers from current events or political maneuvers. While housing is a fluctuating market, real estate is not.
With all of that in mind, advisors must understand the real estate market as an investment vehicle and comprehend the many ways an investor can invest in real estate, from simple land purchases to real estate investment trusts and even time shares and vacation club ownership.
According to Spectrem’s study Asset Allocation, Portfolios and Primary Providers, among all investors, 20 percent own a second or vacation home, and that percentage increases to 32 percent among Ultra High Net Worth investors with a net worth between $5 million and $25 million. Among the less wealthy Millionaire investors, 19 percent own second homes.
The ownership of real estate products such as undeveloped land, residential rental property and even time shares range from 11-12 percent overall, and UHNW investors get up to 15-16 percent of such products. But where a greater interest lies is in Real Estate Investment Trusts, with 13 percent of all investors invested in those accounts and 22 percent of UHNW investors aligned with REITs.
Advisors are not required to be real estate agents or assessors, but having a real estate contact can make these investments easier to find and can assist in determining the best land to purchase or invest in.
There is only a small percentage of affluent investors who invest in commercial real estate properties, with up to 8 percent of UHNW investors so invested.
Top Takeaways for Advisors
Advisors are asked to understand many different forms of investment, and real estate is a complicated one. Having a reliable real estate expert for investment purposes would be a positive addition to your team of experts.
Unlike many other forms of investment products, real estate is one investors may have a preconceived notion about in terms of its value. Make sure your investor is operating from a proper point of knowledge on the subject, but explore it as far as the investor is interested.
©2018 Spectrem Group