High-net-worth clients – especially those nearing retirement age – tend to want to shy away from real estate investing at times, but the fact of the matter is that real estate can still be a lucrative investment option for people of all ages and wealth levels. There are many reasons why clients who are both high-net-worth and nearing retirement age should take a good look at real estate investing as they work to reach their goals of growing and retaining wealth their hard-earned wealth. Here are three specific reasons why real estate investing might be a benefit to your high-net-worth portfolio if you’ve reached middle age or beyond.
A Good Diversifier
Real estate is a valuable addition to a well-diversified portfolio. A well-diversified portfolio for an older client should contain a variety of investment types that lean more toward low risk than high risk. Now’s not the time to be playing high-risk gambling games with your investment portfolio if you plan on retiring any time within the next 5-10 years, or especially if you’ve already reached what the masses consider to be retirement age. Slow and steady wins the race for older investors. Owning real estate is a great way to bring some diversification into your investment portfolio and yet still keep risk low. (For more, see: How to Value a Real Estate Investment Property.)
A Passive Income Source
If you hire a property management company to handle tenant relations, real estate investment properties can be a terrific source of passive income. Reputable property management companies generally charge a very reasonable fee to coordinate tenant needs for single-family and multi-unit residential dwellings as well as for commercial dwellings, freeing up your time as the investor to do more of the things you enjoy while still allowing you to rake in the cash from your real estate investments. Property management companies handle components of rental real estate such as collection of the rent, signing of the lease agreements, facilitation of any needed repairs on a property, and fielding any tenant questions and needs. Because tenant and property management can take up a large amount of a real estate rental property owner’s time, many investors utilize property management companies to facilitate these cares in order to make owning real estate rental properties less work. (For more, see: How Real-Estate Rents Can Fund Your Retirement.)
Passive income investments (investments that allows an investor to make a profit while doing little or no work) are a long underutilized gem in the investment world that are only now starting to get the attention they deserve. Adding some real estate rental property to your investment portfolio can be a great source of passive income if you choose to utilize an investment property management company to handle the small details of property and tenant management on your behalf. (For more, see: Buying Your First Investment Property? Top 10 Tips.)
Intrinsic Value Means Lower Risk
Land, cattle and gold were often touted as the most secure investment options back in the early 1900s, when the stock market was still new and didn’t have the solid ROI (return-on-investment) history that it does today. While you may have doubts about investing in gold and/or cattle, there’s no arguing that real estate investments have proven themselves to be trustworthy over the long haul. With a historical return rate hovering in the 7% range, real estate investments have a solid history of producing positive return rates that nearly always beat inflation. While, like any other investment, real estate values do have their occasional dips, long-term real estate market analysis proves that real estate investments carry a lower risk than many other investments. (For more, see: Can Real Estate Stabilize Your Portfolio?)
Types of Real Estate to Consider
High-net-worth clients have their own take on what types of real estate investments best suit their plush portfolios, and the truth of the matter is that real estate investing is growing more and more popular among high-net-worth investors. (For more, see investopedia's Real Estate Investing Tutorial: Exploring Real Estate Investments: Advantages and Disadvantages.)
Most high-net-worth clients like their real estate investment holdings to lie primarily in residential real estate properties, while sources report that development land is second highest in demand. At the bottom of the real estate investment list for high-net-worth clients is retail real estate holdings.
The Bottom Line
The second half of life is a time when high-net-worth investors are generally looking to trade in high-risk investments for more solid rate-of-return investments that will still provide some growth. Whatever type of real estate investments holdings you choose as a high-net-worth investor, make sure that you’ve educated yourself well on the ins and outs of real estate investing. You deserve to have hard-earned wealth continue to work hard for you as you sail toward your retirement years in peace, tranquility and a secure wealth portfolio. (For more, see: Tax Deductions for Rental Property Owners.)