How the Rich Invest in Real Estate

By Hal M. Bundrick

NEW YORK (MainStreet) Considering all alternative investments -- hedge funds, private equity, venture capital and all the rest -- millionaire investors favor one asset over all others: real estate. By far. Fully 77% of millionaire investors say they own a direct investment in real estate, while 35% say they own shares in Real Estate Investment Trusts (REITs), according to a Morgan Stanley survey.

When considering a stake in real estate, many investors think of residential rental properties or "flipping" renovated houses. And millionaires do favor direct real estate investments, but self-storage properties are a favored asset for wealthy investors, according to Gary Kaminsky, a vice chairman at Morgan Stanley Wealth Management in New York.

One-third of the millionaires surveyed said they planned to add additional residential and commercial properties to their portfolios this year. Nearly one-quarter (23%) said they expect to take additional stakes in real estate investment trusts, the second-most popular choice.

"After a year where the Standard & Poor's Index rose 30%, some millionaires are moving money out of traditional, long-only strategies to find outperformance, and turning toward alternatives such as real estate and private equity," Kaminsky told Bloomberg. "Sophisticated, high-net-worth investors are much more concerned about losses."

Following real estate and REITs, millionaire investors favor ownership of collectibles (34%), followed by precious metals (28%), private equity (27%), real assets (oil, gas, mining, 17%), private real estate funds (16%), hedge funds (16%), and venture capital (13%).

Meanwhile, large institutional and international investors are also fueling the U.S. real estate market. In a recent survey by Blackrock, 49% of institutional money managers, a group comprised mainly of pension funds, indicated they planned on increasing their real estate allocations in 2014.

Trulia, a consumer real estate information website, recently identified ten U.S. "markets to watch" in 2014, based on "strong fundamentals, recent job growth and longer-term economic success, as well as recent construction activity typical of vibrant markets."

The top ten included Bethesda-Rockville-Frederick, Md., Charlotte, N.C.; Denver, Colo.; Fort Worth; Nashville; Oklahoma City; Raleigh, N.C., Salt Lake City; Seattle; and Tulsa.

 

--Written by Hal M. Bundrick for MainStreet

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