Thursday, February 20, 2014

7 Reasons why wealthy Americans are buying real estate as fast as they can.


Coming out of one of the worst real estate crashes in the history of the United States, many people are still overly cautious about jumping into the housing market again.  However, as the market roars back and prices swell, there’s definitive evidence that real estate is still one of the best – if not the top – investment most people can make.  But don’t just take my word for it – let’s take a look at how the wealthiest Americans feel about investing in real estate – with their own money, not just lip service.  The simple truth is that the upper class are now snatching up real estate as fast as they can.  Whether it’s residential homes, commercial real estate, apartments, or shopping malls (but especially residential homes!) the rich seem intent on adding as many properties to their portfolios as possible.

In fact, a recent survey by New York’s top investment bank, Morgan Stanley (MS), revealed that U.S. millionaires see real estate as the top alternative-asset class to own in 2014.

Of investors with at least $1 million in assets, more than ¾, approximately 77% own real estate!
At least 33% of the millionaires who participated in the survey stated that they planned on buying even more real estate this year, the leading asset choice.

What was the second most popular choice to buy more of?  23% of those surveyed said they expected to invest in real estate investment trusts, as well.

In summary, Morgan Stanley determined that direct ownership of residential and commercial real estate was the No. 1 alternative investment choice for 2014.

I’d venture a guess that the wealthy get wealthy and stay wealthy for a reason, and that’s because they’re on the cutting edge of information, trends, and resources to help them make big money (and not lose money.)  Maybe it would be wise to follow their lead?  Here are 7 reasons why the wealthy are so eager to buy real estate this year:

1. Appreciation.
According to the S&P/Case-Shiller index of home values, prices in 20 markets are up an aggregate 24% since the 2012 low.  Additionally, U.S. commercial-property values rose 8 percent January 31, 2012, and have jumped 71 percent since hitting the post-recession bottom in 2009, reports Green Street Advisors.  That skyrocketing appreciation certainly attracts wealthy investors.

2. Low interest rates.
Analysts believe that mortgage and lending interest rates will stay stable or even declined over the next couple of years.  Despite media scares, rates are still super low and the Fed is doing a good job of easing off stimulus while focusing stability.  Rates have dropped almost every week in 2014, and even with room to swell a little they’re near record lows.  But in a couple years, higher rates will diminish the attractiveness of real estate.

3. Stocks are shaky.
The DOW is down and stocks are cool with wealth investors.  It’s not a bad market per se, but they consider the Bull dormant and expect stocks to get more expensive and displaying uncharacteristic vulnerability in 2014, opening the door for real estate investments.

4. Foreign investors are strengthening the real estate market.
A lot of foreign currencies are strong against the dollar and growing international economies are resulting in wealthy foreigners snatching up U.S. real estate.  That keeps demand high and prices healthy, therefore stimulating more appreciation.

5. The basics still apply.
So much has changed in our financial landscape but the fundamental strengths of real estate still apply.  Real estate in an up market yields fantastic leverage of limited funds to acquire the asset, a predictable stream of rental income, and input over picking and maintaining the right property.  BigSur Partners CEO, Ignacio Pakciarz is on record as stating that owning real estate is also attractive because better control and supervision over the investments.

6. Tax breaks are in play, again.
Some huge positive changes concerning the taxation of real estate are imminent.  A shuffling of the head of Senate Finance Committee is expected to signal reauthorization of the mortgage debt forgiveness law that allows financially stressed homeowners to escape federal taxation on the principal balances written off by lenders in connection with short sales, loan modifications and foreclosures; deductions for private and FHA mortgage insurance premiums; and write-offs for certain home energy-saving improvements.  That’s huge news for the tax-conscious wealthy.

7. Uncharacteristically low risk.
The one downside of real estate is that it’s an illiquid asset, posing significant risk, but if stocks are seen as risky then real estate is even more of a sure bet.  Wealthy investors are also opting more for simple ownership of quality residential real estate, abandoning big development, shopping centers (as retail sputters,) condo projects, fixer uppers, etc. because of the risk and complications they pose.  By simply taking fee simple title in their names (or entities) they focus on buying good cash flowing properties that produce income while they sit back and gain appreciation.

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