I don't sleep any better at night with illiquid, immovable, concentrated, maintenance capital requiring, real estate as a larger portion of my net worth than securities, despite more frequent quoted price fluctuations. You can always purchase accommodations. Outside factors can triple your property taxes, run a highway through your neighborhood, rezone it for strip clubs and toxic waste, sandy can come and leave a ghost/mold town....
Exactly. Real estate is riskier than a diversified stock portfolio. I track my liquid-to-illiquid equity ratio along with a variety of other net worth stats, and while I'll happily take any gains whatsoever, I always prefer more liquidity (i.e., more market gains than real estate appreciation).
I'm not sure that's really true.
I live in a town that's not a in boom real estate times. So I'm only expecting regular old real estate appreciation via inflation.
if I buy and fix up a property that's worth $80,000 for $45,000, how is that risky?
It's insured so there's little risk of major loss due to fire, etc.
It's paid for and the taxes are low, so little risk of confiscation due to that.
Rents tend to track with inflation.
It will throw off about $4800 in profit for the year, after setting aside repair and vacancy money and subtracting out expenses.
That's a 10.6% return on investment each year and a $30,200 gain in net worth on top of that (and that's subtracting out the 6% realtor commission if I sell).
It could lose 50% in value in a time period where I have to sell it (for unrelated reasons) and my losses would only be $9,800 (or 22%) and that includes paying the realtor 6%.
Yeah, riots or earthquakes could trash it. Same could happen to a company, either directly or indirectly hampering its profits in the affected area.
So how is that risky?
Now, if you were referring to buying a very expensive home to live in a well-established real estate boom, where you've only got 5% equity in it before prices drop 50%, then yeah, that's risky. :)