90% of Net-Worth in Real Estate, now what?
Jonathan BombaciBusiness Member
Real Estate Agent · Lowell, MA · Member since 2019 · 1k+ posts · 1k+ votes90% of Net-Worth in Real Estate, now what?
Most Popular Reply
Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 344 votes
4y@Jonathan Bombaci
Are you including your personal home as part of the 89.4%? I look at personal homes as an expense more than an investment. The equity put in your home does nothing for you because you have monthly expenses every month. A better investment would be to rent the home out make positive CF. I know a lot of people will say they can refinance their house but then you have a bigger expense every month. The advantage of a house is living where you want to live, some people see it as a security, but I still would not see it as an investment, or I would see it as a bad investment numbers wise. That does not mean do not buy a home just be aware of what you are buying.
In terms of your portfolio allocation, I want 80% of my portfolio to pay me to own it, 10% is speculative and 10% in safe liquid asset. If your RE is making positive CF it does not cost, you anything to hold it. If you are going to refinance, I would make sure the building will still be cash flow positive and you have reserves in the bank. With that refinanced money I would be very careful investing in anything right now even before the Russian/Ukrainian conflict the economy was in bad shape. In the first week of Dec. the Eurodollar futures inverted, and the yield curve for US treasuries has been getting flatter. The war has accelerated this even more to where there is less than 25 basis points difference between the 2yr and 10yr treasury. The economy has gone into a recession every time there is a yield curve inversion and after every yield curve inversion there has been a recession. There is a very high probability of a stock market crash and since WW2 real estate has crashed just under two thirds of the time. If you are refinancing it would be smart to take a step back and look for the next opportunity. When people panic you will see deals come up and you just have to stay unemotional about your thought process/decisions. The 10% speculative could be what we are talking about waiting to deploy that capital when you see a move in a market. For the last 10% of your portfolio your goal is to protect/preserve your purchasing power. This can be precious metals, specifically gold, you could hold on to more cash now if you think the market will move and there will be buying opportunities available.
On your last comment about hoarding gold being silly. Gold has outperformed the S&P 500 and Dow since 2000. S&P500 in 12/1999 $1,498.58 to $4,328.87 that's a 2.89x, DOW 12/1999 $10,921.93 to now $33,614.80 that's a 3.08x, Gold was $278.40 in 12/1999 today it is $1,974.90 that is a 7.09x. I am not saying to be a nut and go crazy but owning some gold protects your purchasing power.
6 Replies
- 4yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
buy a easy to run small business..
- Westbury, NY · Member since 2016 · 69 posts · 37 votes4y
Buy an easy to run small business and bitcoin/eth
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes4y
I was also in finance and earned my series-7 in 1996. My allocation in 2002 was 10% RE, 90% paper securities. It's been 94% RE, 6% paper for about 7 years.
But not all RE is the same. We have houses, plexes, commercial. May go into warehouse, industrial, self-storage for more diversity under the RE umbrella.
I've been reducing and consolidating since 2017 and more recently carrying the financing on a couple long-held commercial multis last year and this.
Still in but also out and pretty tax-friendly. Careful exiting too much in 1 calendar year👍
My wife and I are in a similar situation. I'm considering selling (or 1031) 1-2 of my properties this year and buying a business or a share of 1-2 businesses.
Rising rates are making it difficult to cash flow on real estate even when you get a good price. I'd like to take some profits and re-enter the market when prices and/or rates have normalized a bit.
- Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 344 votes4y
@Jonathan Bombaci
Are you including your personal home as part of the 89.4%? I look at personal homes as an expense more than an investment. The equity put in your home does nothing for you because you have monthly expenses every month. A better investment would be to rent the home out make positive CF. I know a lot of people will say they can refinance their house but then you have a bigger expense every month. The advantage of a house is living where you want to live, some people see it as a security, but I still would not see it as an investment, or I would see it as a bad investment numbers wise. That does not mean do not buy a home just be aware of what you are buying.In terms of your portfolio allocation, I want 80% of my portfolio to pay me to own it, 10% is speculative and 10% in safe liquid asset. If your RE is making positive CF it does not cost, you anything to hold it. If you are going to refinance, I would make sure the building will still be cash flow positive and you have reserves in the bank. With that refinanced money I would be very careful investing in anything right now even before the Russian/Ukrainian conflict the economy was in bad shape. In the first week of Dec. the Eurodollar futures inverted, and the yield curve for US treasuries has been getting flatter. The war has accelerated this even more to where there is less than 25 basis points difference between the 2yr and 10yr treasury. The economy has gone into a recession every time there is a yield curve inversion and after every yield curve inversion there has been a recession. There is a very high probability of a stock market crash and since WW2 real estate has crashed just under two thirds of the time. If you are refinancing it would be smart to take a step back and look for the next opportunity. When people panic you will see deals come up and you just have to stay unemotional about your thought process/decisions. The 10% speculative could be what we are talking about waiting to deploy that capital when you see a move in a market. For the last 10% of your portfolio your goal is to protect/preserve your purchasing power. This can be precious metals, specifically gold, you could hold on to more cash now if you think the market will move and there will be buying opportunities available.
On your last comment about hoarding gold being silly. Gold has outperformed the S&P 500 and Dow since 2000. S&P500 in 12/1999 $1,498.58 to $4,328.87 that's a 2.89x, DOW 12/1999 $10,921.93 to now $33,614.80 that's a 3.08x, Gold was $278.40 in 12/1999 today it is $1,974.90 that is a 7.09x. I am not saying to be a nut and go crazy but owning some gold protects your purchasing power. - 4yPaul MoorePro MemberCommercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votes
Hi @Jonathan Bombaci. Here’s a very contrarian idea that may be stupid if inflation continues to rise: Cash.
This feels a lot like some other times where bubbles were about to burst. Trees don’t grow to the sky. And if this (potential) bubble bursts and blood runs in the streets, there will be bargains of all kinds in various asset classes.
Refinancing with equity lines is a very low cost/high upside way to have access to cash on demand in distressed times. Good luck!
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