ASSET ALLOCATION OF THE WEALTHY
Where do ultra-wealthy or high-net-worth individuals invest capital? Some might picture portfolios heavy in stocks, bonds, gold, or luxury assets. However, real estate is the top asset for many high-net-worth individuals, often incorporating a substantial chunk of their wealth. According to Knight Frank, high-net-worth investors or individuals with $30 million (or more) in net worth allocate about 32% of their wealth to residential properties and around 21% to commercial real estate, not including the 5% invested in Real Estate Investment Trusts (REITs). Altogether, that is more than half of their respective portfolio of assets. Warren Buffett once said, “If one doesn’t find a way to make money while sleeping, plan to work until you die.” Real estate is an exceptional option for someone wanting to make money while sleeping.
Knight Frank. (2023). “The Wealth Report 2023: top trends and key highlights.” https://www.knightfrank.com/research/article/2023-03-06-the-wealth-report-2023-key-highlights-
Real estate is not a peripheral investment for the ultra-wealthy; it has become the core of these investors’ portfolios. Diversification is critical when investing, and real estate delivers much-needed diversification. It is a tangible asset that you can see and touch, which investors appreciate. More importantly, it affords an investor consistent cash flow, capital preservation, appreciation potential, tax benefits, competitive investment returns, and a hedge against inflation. This hedge is especially true with institutional-quality apartment communities. Additionally, real estate can enhance an investment portfolio by lowering its volatility relative to owning stocks and bonds. It can be the stabilizing force in an investment portfolio.
Types of Real Estate Opportunities
Private Equity
Private equity funds pool money from investors to acquire, develop, and manage real estate properties. They cater to those seeking to invest in larger projects, often with longer investment time horizons and higher return potential, but with passive income being paramount. Passive income is money that one earns with little effort. Investors know they can rely on The BAM Companies’ acquisition acumen and management expertise to do the operational heavy lifting and produce outsized returns.
Direct Investment in Existing Real Estate
Buying multifamily and commercial properties (two important distinctions) offers tangible assets and rental income streams with long-term capital appreciation. Each property purchase demands a substantial capital outlay and labor-intensive management.
Real Estate Investment Trusts
REITs provide a liquid option for real estate investment for those who do not want the hassle of daily operations and management. Investors buy shares in multifamily or commercial real estate, such as industrial and apartment buildings. REITs produce regular income as they must distribute 90% of their taxable income through dividends.
Ground-Up Development
Ground-up development is not for the faint of heart. The reward could be great, but it comes with a high degree of execution risk and expertise. Development encompasses various potential risks: construction cost overruns, fluctuating construction loan interest rates, lease-up issues, etc. The developer or sponsor has paramount importance in these projects. Is the developer also the general contractor? What is the developer’s relationship with the bank? Is the loan recourse, partial recourse, or non-recourse? Is there a guaranteed maximum price (GMP) contract that limits the total cost of a project and protects investors? “Execution Risk” is the operative term that can burn an investor who partners with an inexperienced sponsor.
Concluding Remarks
With properties that appreciate over the long-term, real estate has become a solid bedrock in shifting the financial landscape for high-net-worth individuals. It’s the calming factor in a portfolio of stocks and bonds. Recent history shows that stocks and bonds quickly change due to economic turbulence. Multifamily’s stability and resiliency have stood the test of time; it compounds wealth. Albert Einstein believed compounding was the “eighth wonder of the world,” meaning he felt its power to generate wealth over time was highly significant. He would say, “A person who understands earns it. A person who doesn’t pays it.”
It’s unequivocally true, especially with investments that produce consistent cash flows, that multifamily is an exceptional long-term investment that builds wealth while providing diversification. When making investments that compound overnight, let your sleep do the talking.
Disclaimer: This document is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell securities. Investment opportunities offered by Bam Capital are made pursuant to Rule 506(c) of Regulation D and are available exclusively to accredited investors, as defined by the Securities and Exchange Commission (SEC). Verification of accredited investor status is required before participation in any investment. The information contained herein reflects the opinions of the author and does not necessarily represent the views of Bam Capital. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect opinions and are subject to market fluctuations, economic conditions, and investment risks. Investing in private real estate securities involves significant risks, including but not limited to illiquidity, economic downturns, and potential loss of invested funds. Past performance does not guarantee future results. Prospective investors are strongly encouraged to conduct independent due diligence and consult with legal, tax, and financial advisors before making any investment decisions. Bam Capital makes no representation or warranty regarding the accuracy or completeness of the information contained herein.
© 2025 Bam Capital. All rights reserved.
© 2025 Bam Capital. All rights reserved.
Author: Tony Landa, Chief Investment Office, The BAM Companies, April 2025
