Real Estate Investing:
Key Takeaways
02
Methodology
Advising Clients on Real Estate
Takeaways and Suggestions
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Investment Real Estate’s Role in Client Wealth
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Tapping the Untapped Demand for Advice
Introduction
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Real Estate Investing: Tapping the Untapped Demand for Advice
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“We have 52 company restaurants, making us the largest operator of the restaurant brand. So, we are right there next to the franchisee. We know exactly what it takes to run them and what it takes to build them and what the challenges are, be they labor or food or whatever.”
- Scott Deviney, CEO, Chicken Salad Chick
Investment real estate is an asset class with a time-tested record of building wealth, yet one that many financial advisors have integrated only partially into their practices. To find out about advisors’ attitudes toward investment properties and their experience with the asset class, Wealth Management IQ in cooperation with Realized Financial recently fielded a comprehensive survey of advisors. This white paper will present the highlights of that research, discuss its implications, and offer insights into what advisors may need to help them make more informed recommendations to clients about real estate investment and how to maximize the asset class for their clients and for their practices.
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The information presented does not constitute legal, accounting, tax or financial advice. We try to provide quality information, but we make no claims, promises or guarantees about the accuracy, completeness or adequacy of the information contained in this webinar. Strategies mentioned in this webinar may not be suitable for you. As legal and other professional advice must be tailored to the specific circumstances of each case, and laws are constantly changing, nothing provided herein should be used as a substitute for the advice of a competent legal counsel or professional accountant, certified financial planner, tax preparer or other licensed professional.
Key Takeaway
1
Investment real estate is an important component of a relatively small, but often extremely wealthy, segment of advisory firm clientele. Just under one in five advisory clients, on average, owns investment real estate. Yet the estimated median value of a client’s investment property portfolio is $750,000, while the mean value — pulled higher by the 38% of clients who own more than $1 million in investment property — is $5.24 million.
Average Portfolio Size of Clients’ Investment Properties
$750K
estimated median portfolio size
2
Approximately 39% of surveyed advisors currently offer investment real estate advice, while 35% have done so in the past but no longer do. The remaining 26% have never provided such advice. Among those currently advising on investment properties, 62% see it as a key differentiator in their practice. Of those not currently advising, 31% believe it could help set them apart. Regulatory restrictions (41%), increased liability (38%), and limited market understanding (35%) are the main obstacles. Operational issues, such as lacking investment processes or integrated planning tools, were also cited. Diversification (68%) and current income (63%) are top reasons for including investment property recommendations in client financial plans. Portfolio advice (66%) is the most common form of counsel, followed by market analysis (45%) and financing (40%). For high-net-worth investors, publicly-traded REITs (63%) are the most sought-after investment, followed by multi-tenant commercial and multi-family assets (42%). Critical factors for accredited investors in commercial real estate include portfolio diversification (66%), asset value growth (64%), and tax advantages (62%). Multi-family housing and single-family rentals are the preferred property types for accredited investors.
Preferred Property Types of Accredited Investors
3
“It’s a fairly reasonable way to get new guests in your restaurant, partly because third-party delivery is bringing them there.”
Among Next-Gen Advisors, 39% believe technology is a differentiating factor for their firm, versus just 25% of Established Advisors.
Many clients welcome real estate advice. Given advisors’ estimates of investment real estate ownership among their clients and the prevalence of real estate investments among the most affluent segments of the advised population, adding advice about property investments is a way both to provide more holistic advice to current clients as well as possibly help attract new clients.
Real estate offers unusual tax benefits. Over the years, advisors have learned that delivering demonstratable tax savings is one of the best ways to attract and retain high-net-worth clients.
Real estate is an important part of holistic planning. As much as the cash value of insurance policies and cash held away from an advisor should be part of the total picture that advisors see when making portfolio decisions, real estate investments also should be incorporated into every client’s financial and investment planning.
Real estate investment advice is a practice differentiator. Since the majority of advisors surveyed — 61% — do not currently offer real estate investment advice, those who do are in a distinct minority.
METHODOLOGY
RESPONSE MOTIVATION
Beginning on August 20, 2023 WealthManagement.com emailed to active users, on behalf of Realized, invitations to participate in an online survey. In total, 535 completed responses were received by September 5, 2023.
To encourage prompt response and increase the response rate overall, email invitations and survey materials were branded with the WealthManagement.com name and logo to capitalize on user affinity for this valued brand. As a token of appreciation for their participation in the survey, each respondent was afforded the opportunity to enter a drawing for a Series 8 Apple Watch, valued at $399.
Marsh McLennan Agency (MMA) provides business insurance, employee health & benefits, retirement, and private client insurance solutions to organizations and individuals seeking limitless possibilities. With over 9,500 colleagues and 170 offices across North America, MMA combines the personalized service model of a local consultant with the global resources of the world’s leading professional services firm, Marsh McLennan (NYSE: MMC). Securities and investment advisory services offered through MMA Securities LLC (MMA Securities), member FINRA / SIPC, and a federally registered investment advisor. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Variable insurance products distributed by MMA Securities LLC, CA OK 81142. Marsh & McLennan Insurance Agency LLC and MMA Securities LLC are affiliates owned by Marsh & McLennan Companies. Investment advisory services for MMA Prosper WiseSM are offered solely as a Registered Investment Adviser through MMA Securities. Certain of our investment adviser representatives are registered representatives of MMA Securities. A copy of our written disclosure statement discussing our advisory services and fees is available for your review upon request. Please consult a tax professional for specific tax inquiries and recommendations. The information contained in this document is for education purposes only and is not intended to provide individual investment advice.
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