Why the Rich Invest in Property

The rich are more likely to invest in property, according to a survey conducted on a set of rich people. The reason for this appears to be the promise of long term gain that is more assured in the case of property as compared to stocks and bonds. This makes a self perpetuating cycle of wealth since property helps to enhance their wealth even further, which again finds a channel in property investment. A close look at the investment portfolio of any number of rich people will reveal the share of property in the entire bag of investments.

The recent recession brought property prices down, which saw the rich and wealthy add more properties to their list of assets. Research shows that most wealthy people hold 30% of their wealth in the form of properties, without including their residential premises.

The reasons why the rich invest in property are not difficult to understand. Some of the main ones include:

  • Property is a more secure investment– The recent global financial crisis has revealed that property investors are better off than others since property has not plunged downwards, its decline far lesser than that of other instruments. Property is more secure, and even the rich do not like to take big risks.
  • Property is unlikely to fall substantially in value-While bonds and stocks can sink, property prices can never fall to the bottom, even though a small decline may take place from time to time. Property will always retain its intrinsic value and this appeals to the psyche of the wealthy.
  • Property is a good channel to use excess funds rather than have them taxed– wealthy people have surplus funds and cash to spare. Instead of having it taxed in the highest bracket, it is better to use it for property and find a channel to spend beneficially and add another asset.
  • Property can be put to multiple uses– Property can always be used for various things, like transformed into an office, a guest house, or given to a friend to stay. The rich need such places to help friends and others, and like to have vacant properties for this purpose, while seeing their values appreciate.
  • Property brings higher returns than other investment instruments– Compared to all other investments, property brings steady returns and its value doubles in 7-8 years. This rate of return is not seen in bonds and stocks or any other assets.
  • Property is a touch and feel asset with a value for itself– Property is a visible, concrete asset with a value and utility of its own. It is the end and not a means and therefore appeals to the wealthy who like to see assets with an intrinsic value.
  • Tax benefits– Property investments bring tax benefits and reduces the tax on the capital. Mortgage payments, if any, also yield rebates.
  • Helps to raise funds instantly– The rich may not always have cash handy, and may need large sums suddenly. This can be easily raised by placing one of the properties as collateral for a loan.
  • Property investment alone sees sustained growth– Slow and steady growth is seen only in property and the rich do need to see appreciation as much as anyone else.
  • The rich have seen their wealth multiply in the past through property– A close look at the rich of the past reveals that they all had a huge portfolio of properties that appreciated over time and saw their wealth escalate.

For further reading on Property Investment NZ, click on the articles below:

Setting Goals for Financial Independence – click here

Tips for Becoming a Property Expert – click here

Buying Rules for Property Investment – click here

5 Tips to Add Value through Renovation – click here

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