HNW investing in real estate

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Amid a backdrop of continuous downturns in commodities and petroleum worldwide, real estate has flourished as a leading investment choice among high-net-worth (HNW) individuals—in no small part due to its generous yields as well as its leverage and cap gains that grant it unusual resilience against market declines.
However, HNW investors differ from ordinary investors in that the former do not purchase something only in the hopes of selling it for a higher price later on. StennerZohny portfolio manager and director of wealth management Thane Stenner spoke to The Globe and Mail about the various ways that HNW individuals engage in real estate investment on a more intimate level compared to other people.
Income Investing
Income investors tend to be highly conservative players that aim for optimum cash flow and long-term profits, even willing to forgo getting returns right after development is complete. “These HNW investors typically look for a stable, secure yield, tax-preferred in nature and structure if possible, with modest capital growth potential,” Stenner said.
Ordinary investors can also bloom in this environment along with their HNW counterparts through real estate investment trusts involving apartments.
Opportunistic Investing
According to Stenner, opportunistic investors gun for the maximum gains in the shortest timeframe, preferring an “asymmetric” return—that is, taking advantage of a riskier prospect in the hopes of getting a more generous payoff. This often involves making investments during a downturn and selling this off when the market is on the rise (rather like ordinary investors, only on a far more perilous scale).
Development Investing
Development investors are characterized by what Stenner called a “strong stomach” that could weather major setbacks, as well as a significant amount of capital. These individuals aim for raw property that they can develop into a major hub such as a mall or an office building.
“The real estate developer is looking for substantial returns from individual/basket real estate projects, typically 30-50 per cent IRRs [internal rates of return],” Stenner added.
These diversified HNW investors fund mortgages or lend capital to opportunists and developers, in exchange for fixed returns and asset coverage. “Because wealthier investors tend to have more liquidity, this also creates more optionality to deploy capital in various ways, while using the real estate as collateral or protection,” Stenner said.

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