You might not have known exactly when the stock market was going to head south but the fact that it would was fully predictable. And the wealthy saw it coming. With fixed income investments (saving accounts, CDs, etc.) continuing at near historic lows and the equities (stocks) sliding downward once again, those with money to invest are again turning to residential and commercial real estate.
A survey released by a NYC investment bank shows that 77% of millionaires already directly own real estate and 33% plan to continue investing in real estate. Another 23% plan to shift out of stocks and into real estate investment trusts. Still others say they are planning to become sources of private equity for loans secured by real estate. The fact that these knowledgeable individuals are moving out of stocks will continue to place downward pressure on the overall stock market.
Those Already With Money Turn to Real Estate Investing
The clear indication is that people that know how to make money are turning to real estate for the near term increase in real estate prices. Last year saw real estate prices jump significantly. The year 2016 is likely to see similar increases and it will be a much less risky haven for investors than other investment alternatives. This includes both flips and rentals.
U.S. millionaires are also watching foreigners invest in U.S. real estate. Another important economic development has been the slowing of growth or even downturns in economies of developing countries. Particularly China. However, the economic declines extend to other major Asian players such as Singapore and South Korea.
Foreign investors continue shifting to U.S. real estate as a secure investment. This moves their wealth out of a under developed domestic economies and into a U.S. dollar economy. Foreigners still consider the U.S. dollar to be the world’s most secure currency.
American investors see this as a sign that it will help maintain the value of their property investments. It also creates liquidity in the domestic real estate market when there are ample buyers looking to buy.
What the Wealthy Are Buying
Not to generalize too much but BigSur Partners, a Miami-based wealth-management firm, is looking for real estate where there is likely appreciation of property value and a stream of rental income, as well as better control and supervision over the investments. So far, these include office properties in Pittsburgh and Boston, multifamily residences in Texas, and some industrial buildings in key locations. BigSur clients are also asking for lending opportunities.
Private equity lending will drive more traditional buyers’ into the real estate market. Since banks continue making it difficult to borrow, increasing private equity in the market becomes a good alternative for first time buyers and others wanting to buy up but they don’t have a lot of equity in their existing real estate uinvestments.
Real estate remains a charming investment for 2016. It certainly remains among the most attractive going forward. Although the U.S. economy exited the Great Recession many years ago, growth has been slow. Most economists think the U.S. economy will remain in slow growth mode until at least 2017. However, real estate is the most attractive investment market as it always has been.
As the wealthy move money into real estate they are keeping a close eye on interest rates. The consensus is that if interest rates increase more than a percentage point or two, the slow economy coupled with rising interest rates will put a drag even on real estate values and liquidity. These people are also choosing their investments carefully. Multiple family residences are still popular as are self-storage units in the commercial sector. However, few are investing in retail sales properties as values continue to be pressured downward by both lack of consumer confidence and the ever-increasing purchase from online retailers.
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Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for seven years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. In the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.