Where Do Millionaires Invest Their Money in Real Estate?

What Type of Real Estate Do Millionaires Invest In?

Many millionaires reach that status by honing their financial acumen through education, experience, and strategic decision-making, especially when it comes to their investments. High-net-worth individuals (HNWIs) typically have a good grasp of financial markets, investment principles, and economic trends. They leverage this knowledge to make informed decisions and recognize great investment opportunities that maximize returns and minimize risks

 

 

 

 

 

 

View this post on Instagram

 

 

 

 

 

 

 

 

 

 

 

 

A post shared by BAM Capital (@bamcapitalgroup)

While ultra-high net worth individuals tend to put their money into different assets, real estate has long been one of their most favored strategies for wealth management.

Some make their first real estate investment in a primary home and proceed to purchase additional properties. They then expand into other types of real estate such as commercial properties and vacation rentals. Large investors may even have millions invested in real estate. [1]

Here we will discuss where millionaires typically invest their money in real estate and why.

Why Do Millionaires Invest in Real Estate?

HNWIs have several reasons to invest in real estate. For example, it is a tangible asset that tends to appreciate over time, offering both capital gains and a hedge against inflation.

While some properties may lose their value, real estate will nearly always go up over the long term. In some cases, appreciation happens due to growth in the market, while sometimes appreciation is “forced” by making improvements in the property. This long-term appreciation is often more stable compared to the volatility of stock markets. [2]

Real estate also provides a steady stream of income through rental payments, which can offer a reliable cash flow. This is a benefit that can help HNWIs expand their wealth. On top of that, it also differentiates real estate from stock investments. This is because cash flow does not happen if you only hold stocks. Generally speaking, you only make money once you sell the stock and if the stock value has gone up. [2]

There are even tax benefits associated with real estate investments, such as deductions for mortgage interest, property taxes, and depreciation. Tax benefits are in place because the government wants to encourage property investment. Because of these, real estate investors often end up paying less taxes overall even as they are bringing in more income. [2]

Finally, owning a real estate property helps diversify your investment portfolio, reducing its overall risk. These are only some of the factors that make real estate a strategic and lucrative choice for millionaires. Some of its benefits are specific to the type of real estate property you are investing in.

Here are some of the types of real estate that are most popular among HNWIs:

Luxury Residential Properties

One of the most common investments for millionaires is in luxury residential properties. But contrary to popular belief, a high price tag is not enough to put a property in the luxury category. These homes are often located in prime locations like beachfront, metropolitan cities, or exclusive suburban neighborhoods. [3]

Wealthy buyers prefer having access to luxury activities like high-end shopping, dining, and the arts. Other than being in a prime location, high-end properties also come with unique features, like panoramic views, advanced security systems, custom designs, and state-of-the-art amenities, making them highly desirable for investors and tenants alike.

Other amenities high-end buyers may desire include a chef’s kitchen, a luxury pool, an outdoor living space, and an expansive owner’s suite. And while many buyers prefer to have plenty of space, a massive home is not necessary to live in luxury. [3]

Compared to other investment types, this segment of the real estate market tends to be less volatile, providing a safe haven for preserving wealth and achieving long-term financial growth. They serve not only as primary or vacation residences but also as long-term investments that have the tendency to appreciate significantly over time.

Commercial Real Estate

Commercial real estate is another major investment avenue. Commercial properties are buildings that are typically leased to businesses on long-term contracts, providing a stable and predictable income stream. This includes office buildings, retail spaces, hotels, and industrial warehouses.

HNWIs often invest in commercial real estate due to its potential for high returns and long-term stability.

For commercial real estate investors, their purchasing decision is not always based on the later sale. Instead, they focus on cash flow. While commercial properties may still appreciate in value over time, a lot of investors that go this route tend to be more interested in the income that the property can generate. For this reason, they may choose to hold the asset for the long-term. [4]

Similar to other real estate assets, commercial real estate also allows for diversification within an investment portfolio, reducing overall risk.

Wealthy investors often leverage their financial resources to acquire prime locations, ensuring higher occupancy rates and more lucrative lease agreements.

Multifamily Properties

Another way to generate a reliable stream of cash flow through real estate is with residential properties—specifically multifamily properties like condominiums and apartment communities. Multifamily properties are real estate properties with multiple units, therefore they can support multiple tenants and provide multiple streams of rental income from a single investment. Unlike commercial properties, multifamily properties are designed for residential purposes. [5]

This diversification within a single asset reduces the risk associated with vacancies, as the impact of one unit being vacant is mitigated by the income from other occupied units. Unlike single family properties, they are more reliable because their cash flow does not depend on a single tenant.

The economies of scale in managing and maintaining these properties also make them more cost-effective compared to single-family investments.

Multifamily properties can also appreciate in value over time, offering both ongoing cash flow and long-term capital gains. This is why HNWIs invest in multifamily properties as a strategic way to generate stable and substantial returns.

Real Estate Investment Trusts (REITs)

For those who prefer a more hands-off approach, real estate investment trusts (REITs) offer an excellent alternative.

A REIT is a company that holds a portfolio of income-producing real estate. When you invest in a REIT, you are investing in the company itself rather than owning real estate yourself. There are several types of REITs, including mortgage, equity, and hybrid REITs. These are classified depending on how the shares are bought and sold. [5]

REITs provide a way to invest in a diversified portfolio of real estate assets without the need to directly manage properties. This diversification helps mitigate risks associated with individual property investments.

Additionally, REITs offer liquidity since they are typically traded on major stock exchanges. This approach makes it easier for investors to buy and sell shares compared to traditional real estate. [5]

The income generated from REITs, often in the form of dividends, is another attractive feature, as REITs are required by law to distribute a significant portion of their taxable income to shareholders. This can provide a consistent income stream.

Finally, REITs can offer exposure to various sectors of the real estate market, including residential, commercial, industrial, and healthcare properties, allowing HNWIs to benefit from the growth and income potential across different segments of the market.

The Best Real Estate Investment for Accredited Investors: Multifamily Syndication

One of the biggest advantages of investing in real estate is the fact that there are so many options available. HNWIs can employ a diverse range of strategies when investing in real estate depending on their risk tolerance, budget, investment horizon, and personal preferences.

From luxury residences to commercial real estate, to REITs, the real estate market offers numerous opportunities for the wealthy to grow and protect their wealth.

However, for accredited investors, there is an even better alternative to add to their investment portfolio: multifamily syndication.

A real estate syndication deal involves pooling together the financial resources of multiple investors in order to purchase a single property. It is similar to REITs in that it is a passive way to invest in real estate, but the difference is that investors are actually acquiring a share of the property. [6]

Syndication deals can be done with any type of real estate, but multifamily syndication is the most popular among HNWIs and accredited investors because of the strong cash flow associated with these larger properties.

Condominiums and apartment communities also tend to be more expensive and therefore harder to acquire for a lone investor. A multifamily syndication solves that problem by making it more accessible. Instead of spending millions trying to acquire a multifamily property on your own, you get to provide just a portion of the capital needed. This also reduces the risk involved significantly.

Syndication deals are arranged by syndicators or sponsors who serve as the general partner (GP). As the GP, they take on most of the responsibilities in the syndication. They are in charge of locating the investment property, conducting due diligence, securing the loan, and finding investors who will participate. The syndicator creates and executes the business plan. [6]

Aside from providing the capital and paying certain fees, accredited investors do not have to do anything else. They are limited partners (LPs) in the deal and have limited responsibilities. Even property management is handled by the general partner.

LPs earn a share of the property’s cash flow in exchange for their investment. This may be distributed on a monthly or quarterly basis. Depending on the deal structure, they may also earn a share of the equity upon resale. However, every deal is different and investors should still do their due diligence before participating in a syndication deal.

Carefully assess the private placement memorandum (PPM) or syndication agreement before joining a multifamily syndication.

Because the syndicator handles everything, this is a true passive investment in real estate. Investors do not have to worry about anything else. They can just sit back, relax, and enjoy their real estate investment.

Work With BAM Capital for the Best Multifamily Real Estate Syndication Deals

With multifamily syndication, accredited investors can avoid the headaches of being a landlord. There is no need to worry about tenants, emergency repairs, and property maintenance. The syndicator will handle the day-to-day operations of the apartment community.

It is worth noting that most syndication deals are exclusive to accredited investors. This is because even multifamily syndication has its risks. Accredited investors have the investing knowledge and experience to properly assess these deals beforehand. Thanks to their annual income and net worth, they also have a financial safety net in place that can protect them in case a deal does not work out.

Syndication deals tend to last for several years, so you may not have access to your funds for a significant period. Investors need to be comfortable with a bit of illiquidity.

Because most of the decisions will be made by the syndicator, it is essential to work with one that you trust.

Work with BAM Capital if you want a syndicator that has a reliable track record for excellence. BAM Capital is an Indianapolis-based syndicator that is known as an industry leader thanks to their award-winning investment strategy. [7]

BAM Capital prioritizes high quality multifamily real estate properties that have proven upside potential and in-place cash flow, particularly those that are Class A, A-, and B++. They then use their investment strategy to create forced appreciation while mitigating investor risk. [7]

Thanks to this approach, BAM Capital now has over $700 million AUM and 5,000+ units. [7]

BAM Capital is also a vertically-integrated company, meaning they can handle every step of the syndication process, from acquiring the properties to renovating and managing them. They will guide you every step of the way.

No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.

Accredited investors who want to enjoy the passive income and all the other benefits of multifamily syndication should schedule a call with BAM Capital and invest today.

Sources:

[1]: https://smartasset.com/financial-advisor/where-do-millionaires-keep-their-money

[2]: https://www.realestateinvestorgoddesses.com/blog/7-reasons-you-should-be-investing-in-real-estate

[3]: https://www.investopedia.com/articles/personal-finance/092414/investing-luxury-real-estate.asp

[4]: https://www.forbes.com/sites/jamesnelson/2024/03/09/why-commercial-real-estate-might-make-for-better-investments/

[5]: https://www.investopedia.com/terms/r/realestate.asp

[6]: https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important

[7]: https://capital.thebamcompanies.com/