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How Much Real Estate in your portfolio?

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  • How Much Real Estate in your portfolio?

    I have been offered to invest in another local real estate venture. I realize that this blog has lots of younger Docs, but for the older group who may have fairly good sized real estate holdings, what is too much? If I invest in this project I will have to shift some paper assets to the project, and will be at 15% of net worth( excluding personal residence) in income producing real estate. Is this too much? Do others go substantially higher? To be more precise , I am asking about direct ownership in income producing real estate, not REIT's, and not second homes. Thanks.

     

     

     

     

  • #2




    I have been offered to invest in another local real estate venture. I realize that this blog has lots of younger Docs, but for the older group who may have fairly good sized real estate holdings, what is too much? If I invest in this project I will have to shift some paper assets to the project, and will be at 15% of net worth( excluding personal residence) in income producing real estate. Is this too much? Do others go substantially higher? To be more precise , I am asking about direct ownership in income producing real estate, not REIT’s, and not second homes. Thanks.

     

     

     

     
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    15% (excluding personal homes) doesnt seem like too much. I guess the other condition is if it tanks 100% will it alter your life plans, and 15% doesnt seem like it should.

    I have just bought another house and am moving my former to a rental (spent the last year working on it and getting it marketable), but since I'm young that makes it more like 30-40% of my invested net worth excluding personal. If possible I plan to buy another place in a year or so for similar purposes, but would then likely grow out the other slower side after that primarily.

    I was shooting for 25-33% goal eventually, does that seem like too much?

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    • #3


      I was shooting for 25-33% goal eventually, does that seem like too much?
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      I wouldn't worry much at 30% if you are younger, but at my "advanced age" I start to get a little edgy, having been an investor in the last real estate crash. I go back and forth on how much is too much. I lost money in single family homes back in the day, but thus far have done very well on the commercial side. I think I will go for it, and rebalance my paper asset side over the next few years.

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      • #4
        I think 25-33% is fine if you are fine with the asset class.
        Helping those who wear the white coat get a fair shake on Wall Street since 2011

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        • #5
          Depends on your other asset classes . If the rest is in super speculative startup funds then the real estate allocation doesn't look so risky after all.

           

          Really depends on your risk tolerance. Some do real estate as their whole side business and way more exposed (see sites like biggerpockets).

           

          We also were looking to diversify into "alternative" asset classes and started looking at real estate. But didn't want to plop like $200k on SINGLE property, so instead when the real estate syndicate route (which has been widely discussed by others). It let's us spread our risk out so it's not all the "eggs" in one basket but gives us the exposure to an alternative asset classes that balances the risk and reward for us.

           

          Only big issue that I'm finding out now, is I went "too diversified" and now have the headache of filling over a dozen k-1s every year now for the next 5 years -- oops! But I do like to see the deposits coming in each quarter!

           

           

           

           

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          • #6
            My exposure to real estate is nearing 10%, but all in REITs, some directly owned and some through an ETF.  I don't have a long enough horizon to feel comfortable with more than that at this point.  I don't have a larger enough portfolio to really warrant other types of real estate.

             
            Yet those who wait for the LORD Will gain new strength; They will mount up with wings like eagles, They will run and not get tired, They will walk and not become weary. -- Isaiah 40:31

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            • #7
              I'm 56 and have about 25% of my net worth in real estate, mostly farmland and vacant land. Unlike stocks, you can't really put a number on land. So I'm using the purchase value to calculate the percentage. The real value is significantly higher.

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              • #8
                Why do people invest in individual properties?  They primary way it makes sense to me is if you are creating a job for yourself after you have retired.  Otherwise the diversity of a REIT index fund (or maybe you can do some work to find the best REIT managers and invest directly in a couple REITs) makes more sense to me.

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                • #9
                  I invest in individual properties because I can do my due diligence. Regarding taxes, future developments around that property, how the local taxation will affect it in the future, where the city is planning to extend sewer and water service etc etc. We just had a big Foxconn announcement in our county today. This company out of Taiwan is going to invest 10 billion and buy up 1000 acres of land. But I had wind of this months ago. What will that do for properties adjacent to this 1000 acres? We had Amazon buy up 1000 acres for a fulfillment center a few years ago. That bumped up property prices. All this information is passed on at the local level. I'm not sure REIT managers are privy to this kind of info.

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                  • #10




                    I invest in individual properties because I can do my due diligence. Regarding taxes, future developments around that property, how the local taxation will affect it in the future, where the city is planning to extend sewer and water service etc etc. We just had a big Foxconn announcement in our county today. This company out of Taiwan is going to invest 10 billion and buy up 1000 acres of land. But I had wind of this months ago. What will that do for properties adjacent to this 1000 acres? We had Amazon buy up 1000 acres for a fulfillment center a few years ago. That bumped up property prices. All this information is passed on at the local level. I’m not sure REIT managers are privy to this kind of info.
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                    Do you feel like that insider information will create enough reward for the enhanced risks of having single / few property concentration and geographic concentration?  Exaggerated examples, but a landfill could get approved next to your property, or in 5 years that new Foxconn facility closes down causing a mini-recession in your area.

                    You really have to be smarter than the entire local market, not just the REIT manager to create alpha. I agree limited auctions arise and you may get a great deal from time to time, but I think it is hard to consistently outperform the market.

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                    • #11
                      10% Vanguard REIT index fund and my main home. That's it and it's all I care to be involved with. I don't think I'd be able to sleep very well if I had substantial investments in individual properties outside of my main home. It's probably a personality thing. I'm too much of a pessimist I guess.

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                      • #12
                        My father is probably somewhere around 70%.

                        I have many clients who are at or approaching 100%.  Actual real property, not REIT funds.

                        They are all doing well.

                        15% isn't enough to lose sleep over.

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                        • #13
                          Many of the wealthiest physicians and other professionals have far more than 15%. Like Craigy says, it can be the majority of holdings for some. There's potentially higher risk and higher reward. Lots of decamillionaires own plenty of real estate.

                          It's not the same as your income-producing real estate, but leaving our primary home out of the numerator and denominator, our real estate holdings (second home, soon-to-be purchased land, REIT index) add up to about 15% to 20% of our investments.

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                          • #14


                            Why do people invest in individual properties?
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                            To gain a higher return than something like equities or a REIT.

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                            • #15
                              Real estate is a small portion of my portfolio for now but I hope will soon change over time.   Im 38 yo old... and we just recently hit the 7 digit net worth in paper assets alone excluding personal house and real estate.   We've bought two single family homes in the past 8 months and currently in the process on hopefully closing on a commercial multi unit property soon.  My goal last year was 1 SFH rental a year.. now its changed to 1 commercial property year and/or 1 million dollar in real estate investment income annually which I hope to continue to feed the beast with the real estate cash flow.  My pediatrician of a wife is actually enjoying real estate and is now kind of taken that on more so than the clinic practice.   She's off been off for maternal leave x 4months now with our 4th kid... and doesn't appear to have any desire to go back?

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