Historically, real estate investment was predominantly the realm of the wealthy, who utilized it to augment and maintain their fortunes through exclusive access to commercial properties.
This trend is shifting, however, as real estate investment trusts (REITs) and other vehicles have democratized access to property investments, making it feasible for anyone to invest in this asset class.
Nevertheless, data reveals that the ultra-wealthy still allocate a higher proportion of their assets to real estate than the average investor.
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The Appeal of Real Estate for Wealthy Investors
A survey by KKR, a manager of alternative investments, found that high-net-worth families allocate about 11% of their portfolios to real estate, trailing only behind listed equities at 31% and private equity at 27%.
The robust interest in real estate among the wealthy can be attributed to its solid historical performance.
For instance, over the last decade, the NCRIEF Property Index reported an annual return of 8.8% from real estate, significantly surpassing the 1.5% yearly return from bonds.
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Real estate serves as a tool for diversification and risk reduction and benefits from value appreciation, tax incentives, and inflation protection—advantages not typically found in bond investments.
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Moreover, investing in alternative assets like real estate and private equity helps wealthy individuals mitigate their exposure to public stock and bond market fluctuations, contributing to reduced portfolio volatility and potentially enhanced returns.
How to Invest in Real Estate Like the Wealthy
The creation of REITs in 1960 revolutionized real estate investment, enabling anyone with a brokerage account to easily access this sector.
REITs like Realty Income and Invitation Homes present viable entry points for beginners.
Realty Income
operates a diversified portfolio of properties, including retail and industrial spaces, under long-term net leases that shift most property expenses to tenants.
This structure makes such investments relatively passive. The REIT pays a monthly dividend, currently yielding 5.9%.
Its payout has consistently increased, reflecting growing income streams and property value appreciation.
Invitation Homes
specializes in residential properties, offering an alternative to direct ownership of rental homes but with the benefit of passive income.
It manages an extensive portfolio across multiple markets, providing diversification and reduced investment costs with shares priced around $35.
Its dividends have also seen annual increases since its public debut.
The landscape of real estate investment has expanded further with the advent of online platforms like Fundrise and Arrived, which lower the entry barriers to private real estate markets, offering investment opportunities for as little as $10 to $100.
Investing Wisely
While anyone can now tap into real estate for wealth creation, potential investors should assess their options carefully.
Tools and platforms are abundant, making it essential to choose wisely to align with one’s financial goals and risk tolerance.
Real estate remains a foundational element of a diversified investment portfolio for the wealthy and anyone looking to build long-term wealth.