Consider the Alternatives: Millionaire Investors Prefer Real Estate

 

More than three-fourths (77 percent) of Millionaire investors say they own real estate, while 35 percent say they own Real Estate Investment Trusts (REITs).

 | BY DONALD LIEBENSON

 

 


 

Lucy van Pelt from “Peanuts” has the instincts of a millionaire investor (except for charging just 5 cents for her “doctor” visits). In “A Charlie Brown Christmas,” she laments that she never gets what she really wants for Christmas.  “I always get a lot of stupid toys or a bicycle or clothes or something like that,” she complains. What is it she wants, Charlie Brown inquiries? “Real estate,” she responds.

Real estate is by far the most popular alternative asset class, according to a recent survey conducted by Morgan Stanley. More than three-fourths (77 percent) of Millionaire investors say they own real estate, while 35 percent say they own Real Estate Investment Trusts (REITs). Following these, Millionaire investors cited ownership collectibles (34 percent), precious metals (28 percent), private equity (27 percent), real assets (oil, gas mining, 17 percent), private real estate funds and hedge funds (16 percent each) and venture capital (13 percent).

Investopedia defines an alternative asset as a non-traditional asset with potential economic value that would not be included in a standard investment portfolio. Millionaire investors familiar with this term are more likely than not to work with a financial advisor (57 percent vs. 30 percent), the Morgan Stanley survey found.

As with actual ownership, real estate and REITs (33 percent and 23 percent, respectively, lead the list of alternatives surveyed Millionaire investors expect to buy in 2014, followed by collectibles (20 percent), private equity (19 percent) and precious metals (16 percent).  

Proponents of real estate as an investment take their cue from Scarlett O’Hara’s father in “Gone with the Wind,” who observed, “Land is the only thing in the world worth workin' for, worth fightin' for, worth dyin' for, because it's the only thing that lasts.”

Millionaires with up to $5 million in net worth (not including primary residence) rank real estate among the top five vehicles for their investible assets along with, in descending order, technology, healthcare, pharmaceutical and communications. Fourteen percent of these Millionaire investors said they have plans to invest, or increase their investment, in investment real estate.

Nearly all (94 percent) own a principal residence with an average value of $518,000. Twenty-nine percent own a second home or vacation home valued at $274,000 on average. Eighteen percent own residential rental property, 14 percent own undeveloped land, 4 percent own commercial rental property and 7 percent own other investment real estate.

Related story: Investing in real estate—why and why not? (Premium)