Author Topic: What percentage of your overall investments are in real estate?  (Read 1147 times)

undercover

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What percentage of your overall investments are in real estate?
« on: February 05, 2018, 02:29:38 PM »
I once heard someone talk about real estate as if you're going to do it then you are probably going to keep doing it and keep putting every dollar you make back into real estate. I thought this was interesting. On one hand, it makes sense because if you treat it like a business then you'll want it to grow and the only way to grow is to keep building/funding it. On the other, it also makes sense to diversify and not create a snowball of stress.

What percentage of your overall investments are in real estate? And are your other investments other businesses or just stocks?

SeattleCPA

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Re: What percentage of your overall investments are in real estate?
« Reply #1 on: February 05, 2018, 04:42:31 PM »
I once heard someone talk about real estate as if you're going to do it then you are probably going to keep doing it and keep putting every dollar you make back into real estate. I thought this was interesting. On one hand, it makes sense because if you treat it like a business then you'll want it to grow and the only way to grow is to keep building/funding it. On the other, it also makes sense to diversify and not create a snowball of stress.

What percentage of your overall investments are in real estate? And are your other investments other businesses or just stocks?

This is a really interesting question. But I think if you believe what they say in the Rate of Return on Everything paper, that you should potentially have a really big allocation to real estate based on the lower variability of real estate and the lack of correlation with traditional asset classes.

That said, many people (via home ownership) do have a pretty big allocation.

Here's link to paper. It is really worth a read if you're interested in either real estate or modern portfolio theory:

https://www.frbsf.org/economic-research/files/wp2017-25.pdf


Dicey

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Re: What percentage of your overall investments are in real estate?
« Reply #2 on: February 05, 2018, 05:40:59 PM »
It's huge, because we live in a HCOLA. Our non-RE assets, plus DH's DB pension more than cover our number. Call us DIY weirdos, but we have way more fun working on our house and rentals than we do watching our equities.

It's probably around 1/3 primary home (HCOLA), 1/3 rentals (MCOLA), 1/3 equities. The pension and any SSI would be the cute little ruffled cushion that sits on top of that three-legged stool.

sol

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Re: What percentage of your overall investments are in real estate?
« Reply #3 on: February 05, 2018, 05:58:06 PM »
Am I supposed to count the total market value of my RE, my total equity in RE, or the extractable equity I could get back out after transaction costs if I had to sell?

Do I count RE that I live in, or just the RE that produces rents?

On the other end of the fraction, should my "investments" include future revenue streams like pensions or social security?  I've put a huge amounts of money into those but they are worth exactly zero today, and then some huge amount in the future depending on how you calculate the discount rates.

Depending on the answers to these questions, I figure that real estate is somewhere between 8% and 55% of our "investments". 

rocketpj

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Re: What percentage of your overall investments are in real estate?
« Reply #4 on: February 05, 2018, 07:35:41 PM »
My passive investments are about 5-10% REIT (been awhile since I rebalanced so I'm not sure, the target is 5%).

That said, my 'active' investment of late was buying a mixed use commercial building a couple of months ago. 

The building needs a ton of work - about 6 months of hard labor, maybe 8 months.  The price was a total steal because no passive RE investors wanted to buy it.  In dollar terms it is a huge percentage of my total investments, but it is also my job now, so I'm not sure how to calculate it.

That said, if I can finish the work on time and on budget then I'll be FIRE about 15 years ahead of schedule, and just it time for the salmon runs this fall.

undercover

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Re: What percentage of your overall investments are in real estate?
« Reply #5 on: February 05, 2018, 08:05:47 PM »
Am I supposed to count the total market value of my RE, my total equity in RE, or the extractable equity I could get back out after transaction costs if I had to sell?

Do I count RE that I live in, or just the RE that produces rents?

On the other end of the fraction, should my "investments" include future revenue streams like pensions or social security?  I've put a huge amounts of money into those but they are worth exactly zero today, and then some huge amount in the future depending on how you calculate the discount rates.

Depending on the answers to these questions, I figure that real estate is somewhere between 8% and 55% of our "investments".

Yes, I should definitely clarify.

1. Equity only. Less selling fees if you want to be conservative - up to you.

2. No personal home. Everyone knows a primary home is not an investment ;) ...unless you rent out rooms and turn a profit.

3. No pensions/social security...although that could be interesting.

4. Only count REITs if you intentionally own individual REIT stocks.

I'm primarily curious about the fact there may be some who are nearly 100% real estate. So by my definition, Dicey is 50% real estate which is interesting and I know that she owns more real estate than most on here.

I'm curious if those here really do see real estate as an "all or nothing" thing or if they purposefully want to keep it as a more manageable percentage of their portfolio.

sol

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Re: What percentage of your overall investments are in real estate?
« Reply #6 on: February 05, 2018, 09:11:08 PM »
1. Equity only. Less selling fees if you want to be conservative
3. No pensions/social security...although that could be interesting.

That sort of penalizes those of us who contribute a large portion of our salaries to pension plans.  Just because the plan is worthless today doesn't mean I haven't invested in it.

Quote
I'm curious if those here really do see real estate as an "all or nothing" thing or if they purposefully want to keep it as a more manageable percentage of their portfolio.

My RE holding are sort of accidental.  They are both homes I bought to live in, and then they became rentals when I bought the next one. Their equity still counts for a significant portion of my net worth, some of it paid in while I was living there (and it would thus be excluded by your rules) and more of it increasingly paid down by renters each month.  After I retire, if I continue to carry the mortgages, we will have to gradually spend down our stock investments to cover living expenses and our primary mortgage, while our equity in the rentals continues to increase due to renter pay down, which means that over time our net worth will naturally transfer from mostly stocks to mostly real estate.  We could be 90% or more RE one day, just by doing nothing at all, purely because we can't access that equity the way we can access the value of our investment accounts.

brooklynguy

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Re: What percentage of your overall investments are in real estate?
« Reply #7 on: February 06, 2018, 07:25:49 AM »
After I retire, if I continue to carry the mortgages, we will have to gradually spend down our stock investments to cover living expenses and our primary mortgage, while our equity in the rentals continues to increase due to renter pay down, which means that over time our net worth will naturally transfer from mostly stocks to mostly real estate.

Your financial profile looks this way only through the lens of one possible method of mental accounting.  Using an alternative set of equally valid mental accounting principles, you could just as easily claim that your rental cash flow is paying your living expenses while your stock withdrawals are paying down your mortgage loans.  In my view, it's generally better to adopt a more holistic view of your finances.  From that perspective, for purposes of determining your net worth and how it is distributed across asset classes, the liabilities that are your mortgage loans are no more allocable to the assets that are your real estate holdings than they are to the assets that are your stock holdings.

Fishindude

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Re: What percentage of your overall investments are in real estate?
« Reply #8 on: February 06, 2018, 09:44:52 AM »
We have about 39% of our portfolio in real estate, farm ground and commercial rentals, it nets $60-65K annually.
I plan to buy some more farm ground.  It isn't huge returns but it is always there despite what the market does, it takes very little effort to manage, and the ground can usually be sold pretty quickly if there was need for cash.

sol

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Re: What percentage of your overall investments are in real estate?
« Reply #9 on: February 06, 2018, 10:41:17 AM »
Your financial profile looks this way only through the lens of one possible method of mental accounting. 

I understand this point, but how you mentally allocate cash flow does not change the outcome.  In this case, I am basically going to slowly convert all of my net worth into real estate equity in two rental properties.  By the time the mortgages are paid off, I should have approximately a million dollars in rental equity, and no stocks left.   This makes me uncomfortable.

rab-bit

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Re: What percentage of your overall investments are in real estate?
« Reply #10 on: February 06, 2018, 10:49:03 AM »
About 15% right now based on current equity, rising to about 25% once they are paid off within the next 2 years.

brooklynguy

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Re: What percentage of your overall investments are in real estate?
« Reply #11 on: February 06, 2018, 11:15:25 AM »
Your financial profile looks this way only through the lens of one possible method of mental accounting. 

I understand this point, but how you mentally allocate cash flow does not change the outcome.  In this case, I am basically going to slowly convert all of my net worth into real estate equity in two rental properties.  By the time the mortgages are paid off, I should have approximately a million dollars in rental equity, and no stocks left.   This makes me uncomfortable.

Right, but the tendency to allocate mortgage loan liabilities exclusively to real estate assets has the effect of understating exposure to real estate, not overstating it.  Someone with an investment portfolio half invested in (80% leveraged) rental real estate and half invested in (unleveraged) stock holdings might consider their asset allocation to be ~83/17 stocks/real estate.  There are good reasons to view it that way (especially if the mortgage loans are limited in recourse to the real estate collateral), but my preference would be to view that situation as 50/50.

clarkfan1979

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Re: What percentage of your overall investments are in real estate?
« Reply #12 on: February 25, 2018, 12:32:27 AM »
We have two rentals with about 260K of equity, 170K cash and 100K in retirement funds. I guess we are currently about 50% real estate.

Blindsquirrel

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Re: What percentage of your overall investments are in real estate?
« Reply #13 on: February 25, 2018, 04:35:22 PM »
    About 55% of assets are in RE. Most of equity is in rented SFRs.


Xenantaya

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Re: What percentage of your overall investments are in real estate?
« Reply #14 on: February 27, 2018, 08:09:47 AM »
Not counting our residences (wife and I own a house, and we each continue to own and rent out the condos we lived in before we met), 40% of our investments are in real estate.  These are all passive investments in LLCs that have built and/or operate multi-family housing, office, or industrial properties.  If you count our residence and rental condos, then it goes up to 62.5% (this is including the total value, not just equity).  I often worry that I have far too much of my net wealth invested in real estate, but building up the income generated from the LLCs (which typically distribute cash of 8-10% annually) is the key part of my ER strategy.