A new survey by Citi Smith Barney says that over half of millionaires and 40 percent of affluent investors, those with $100,000 in assets excluding real estate and employer retirement plans, or approximately 25 percent of the U.S. population, surveyed believe that real estate is good investment.
That's because they practice what they preach. While about 67 percent of American residents own a home, and one in ten people of all economic backgrounds own a second home, the megawealthy. But among the wealthy, nine out of ten own some sort of real estate investment accounting for one-third of their portfolio, and most (52 percent) report that despite a softening housing market, their real estate investments have increased over the last year.
Outside of their primary residences, one in ten investors reported owning investment homes that they rent out, and a similar share say they are invested in a REIT for commercial property. Millionaires (18 percent) are more than twice as likely as those in lower income brackets (8 percent) to have commercial REIT investments. Just 3 percent of investors overall report owning commercial property, although this proportion increases to 14 percent among the wealthiest group of investors. Performance of these investments varies, however. REITs, in particular, are likely to be described as having increased in value. In contrast, 43 percent of those who own commercial property say those holdings showed no increase in value over the past year.
Ownership of timeshares or second homes is particularly common among millionaires (50 percent) compared with 20 percent among those in lower income brackets. Two-thirds of those who own a second home or vacation report that the value of this investment has increased over the past year, yet 59 percent of those who own a timeshare say this property showed no increase in value.
Most of the investors polled said that they have undertaken major remodeling projects within the past two years (58 percent). Most often these projects have involved landscaping or remodeling a bathroom or kitchen. Most of the affluent investors who have undertaken a remodeling project did so to upgrade the look and feel of their homes (67 percent) rather than to fix an existing problem (15 percent) or head off future problems (9 percent). Another 9 percent indicate that these projects were undertaken with the specific goal of adding to the value of their homes. While investors report having spent an average of about $17,000 on these projects, they believe that the value their project added to their home is far greater ($34,000 on average). A kitchen remodeling is widely seen as having the greatest potential to add to the value of a property.
Accordingly, among those who have plans for future home repair or remodeling projects, landscaping and bathroom and kitchen remodeling continue to top the list. In fact, when asked what they would do if they could make any one major improvement to their homes, investors tend to remain surprisingly conservative. Many say they would choose to do bathroom and kitchen remodeling projects, while others said that they would expand their master suites, build a deck or patio, or finish their basements.
Although investors widely believe the housing market is an important part of the overall economy (41 percent very important, 54 percent somewhat important), and most made money from their real estate investments, eight out of ten feel the housing sector is weaker today than it was a year ago. Moreover, many expect the housing market to remain weak (28 percent) or become even weaker over the next 12 months (46 percent).
Nearly nine out of ten affluent investors in this month’s poll indicate that they own their primary residence. Among them, nearly six in ten report that the value of their home has increased over the past year. Fewer, though, expect their home to increase in value in the coming year (40 percent).
Editor's note: Affluent investors are defined as having at least $100k in assets, excluding real estate and employer retirement plans, a definition that describes approximately 25 percent of all US households. Investors with $1 million or more represent 44 percent of the interviews conducted for the Citi Smith Barney poll.
