When purchasing property, what should you consider as a high-net-worth individual? There are dozens of strategies that will benefit your property portfolio.
Understanding the different avenues you can explore as a real estate investor will broaden your opportunities in the property market. So, what type of property investor are you, and how can you strengthen your finances for the long term?
Net worth is the difference between what you own - assets - and what you owe, liabilities or debts. A person with a net worth over $1 million or more in liquid assets is generally considered a “high net worth” individual.
Likewise, very high-net-worth individuals have $5 million or more in liquid assets, while investors in the ultra-high-net-worth category have over $30 million in liquid assets. High-net-worth individuals can use their financial stability to explore opportunities created or built within commercial and residential real estate.
There are many ways to invest in residential or commercial properties, but which strategy should you use? Depending on your financial goals and individual needs, you can enhance your property portfolio in a way that works for you.
It can be an excellent option to downsize if you're a high-net-worth professional looking to downsize from your larger home after retirement or if children are moving out.
A move-down buyer will sell luxury homes and buy smaller properties that are easier to maintain, with amenities and easy access. For example, if you've purchased a mansion within inner-city suburbs, you may be inclined to downsize to a more rural, quiet area to relax.
Quiet locations near parks, trails, and coffee shops are a popular choice for this kind of buyer. Down-sizing also leaves you with additional capital in your bank account.
If you want to trade an existing home for a larger, more luxurious property due to a change in income, marriage, or having a baby, moving up allows you to live a freer lifestyle.
Modern kitchens, luxury bathrooms, a pool, and a high-tech design are just some benefits you can expect when purchasing for this purpose.
High-net-worth individuals often have multiple homes and can spend money on properties with luxurious amenities such as heated floors, open floor plans, and spacious bathrooms. Luxury buyers often have a list of requirements and look at many homes before committing to a particular location. In these scenarios, the property's location will also typically be assessed for capital growth potential.
Specialising in buying and selling homes, these investors often have many homes rented out to middle-class families or professionals in a single area.
Investors must be sharp and attentive when choosing a home with a good purchase price and location. This allows them to maximise profits while balancing the initial outlay to purchase.
A retail buyer is in the market to purchase a primary residence. With enough cash to buy a property, a retail buyer should consider the proximity to work, medical facilities, schools, or shopping centres.
A fix-and-flip investor looks at properties selling under market value in a specific area. If these properties need renovation, they are restored and sold for a higher return on investment.
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As a person with a high net worth, what are some helpful intelligent strategies? You can choose a solution that puts your finances in a better position for the future.
By collecting rental payments from tenants every month, rental properties are an excellent way to generate monthly income.
Single and multi-family homes such as apartments or duplexes are popular choices. By using this rental income to pay a property manager, you don't need to handle managerial duties for the property.
If you're looking for real estate to invest in, a short-term rental offers exposure by renting a property out for a few weeks or days. However, zoning restrictions and the rental market need to be considered. Long-term rentals are typically a less volatile option versus short-term rentals which might have a high “per night” income rate but which are not rented out permanently.
A real estate investment trust owns and operates investment properties. REITs can specialise in warehouses, storage space, nursing or assisted living facilities, student housing, or retail space.
This offers the benefits of property ownership without needing to buy real estate directly. If the tax benefits and dividend income appeal to you, this is a potential way to gain property exposure without the need to actually manage properties.
When buying commercial real estate, you can lease the asset for income generation or improve and “flip” it for a higher price; for example, you could purchase apartments in bulk and lease individual units.
Overall, long-term viability is essential. For example, retail premises can be vulnerable to market fluctuations, and a strip of shops can be hit with an economic downturn. Consider this when buying and leasing commercial properties, and speak to an experienced financial and/or property advisor in your area.
Once a property has been renovated and is ready to lease or rent, this is known as a turnkey property. Some companies offer turnkey properties for investment purposes, but you should always research rental rates and property values in your area of interest and seek advice from a local professional who knows the market in your selected area.
You can choose between residential or commercial properties by pooling your money with other like-minded investors. With your initial investment being thousands to hundreds of thousands of dollars, this investing option is suited for long-term goals. Legal advice should always be sought when drafting agreements between investors to help ensure that disputes do not arise between investors in the future.
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Regardless of net worth, there are many benefits to investing in property, however, you choose to do it. But why should you diversify your portfolio when you already have a high net worth?
If you own multiple rental properties, this can provide a steady cash flow each month. This is a method to have a secondary, passive source of income which can also be used to pay off a mortgage.
Passive income is money coming in without active work required, which is one of the benefits of real estate investing. Obtain passive income with rental property ownership, dividends, or both.
When prices surge, this can affect your borrowing power. As rents often rise with other prices, this can be viewed as a partial hedge against inflation.
As a rental property owner, you can deduct expenses from your taxes, such as property management fees, property taxes, maintenance costs, and mortgage interest costs. Investing in real estate can provide some tax benefits to investors, but always speak with your tax adviser to ensure the correct structures are put in place.
Whether you are an ultra-high-net-worth individual or a “mum and dad” investor, diversifying your portfolio is the foundation of managing investment risks and market volatility. Finding assets with low correlation to other asset classes can balance your portfolio risk over the long term.
When property investing and growing liquid assets, it is essential to do your research. As a financial advisor servicing Glen Waverley, Camberwell, and Hawthorn areas, Dominium Capital helps pave your way to a more prosperous life.
Real estate investors have common traits essential to growing their portfolio assets in the property market.
Having clear goals in mind is important for generating wealth and meeting goals. In this case, you want to be thinking about wealth preservation and prudently growing wealth over generations, portfolio diversification to improve your returns, and legacy building through strategic investments.
As an investor, your property portfolio is a distinguishing feature of your investable assets. Larger and more diversified real estate holdings allow for bigger financial resources and mitigate risk.
Choosing a sophisticated, reliable financial service provider will help you through the long term. For example, private wealth advisers offer personalised advice and exclusive services, such as wealth management, tailored lending solutions, financial planning advice, and estate planning ideas, all of which help structure your assets, manage your estate needs and coordinate intergenerational wealth transfers.
Understanding your liquid assets and sources of income can provide insight into your financial stability. High-net-worth property investors are entrepreneurs or business owners with alternative investments in any portfolio, such as stocks, managed funds, bonds, and real estate. They can also be successful professionals in fields of choice, such as law, technology, or medicine.
A property buyer with a high net worth chooses real estate strategies carefully and includes giving consideration to properties with long-term appreciation value, investing in luxury real estate in prime locations, and diversifying real estate holdings to different geographical locations and property types (“commercial”, “retail”, “residential”, etc.) for risk management.
At Dominium Capital, we offer more than just a financial service you can count on, with expert advice that isn't exclusive to the uber-wealthy. Applying proven strategies, we understand that wealth is more than money.
We offer solutions for estate planning, retirement planning, personal and business risk insurance, lending and investment in property, and much more. Committed to open communication, we can help you live life on your terms, the way you've been envisioning.
General Advice Warning: This article does not consider your personal circumstances and is general advice only – unless otherwise stated.
You should not act on any recommendation without considering your personal needs, circumstances and objectives. Dominium Capital recommends you obtain professional financial advice specific to your circumstances.
Any general financial advice is provided by Dominium Capital Financial Advisers Pty Ltd, a Corporate Authorised Representative of Dominium Capital Pty Limited ACN 142 188 510 125 AFSL 461653
