I was speaking with a friend of mine the other day about asset classes, and the topic of real estate as an asset class came up. We were under the impression that there are really two ways to hold real estate:
- Investing in Real Estate Investment Trusts (REITs) that purchase and hold real estate investments; or
- Investing in actual real estate (houses, buildings, land)
If you look at my portfolio, I could argue that I hold real estate. My iUnits REIT fund holds a number of real estate investments. Through this fund I invest in hotels, office buildings, shopping centres, and multi-unit rental communities. I have lumped this asset into trusts, but I could easily separate it out as real estate.
In addition, I probably satisfy #2 above through the my personal residence, which I own (but am still paying off). However, I am not sure I would include this in my asset mix as it will not be providing me with any income in the foreseeable future. So what about rental properties?
Should an investor who is holding individual rental properties or buildings include this as a component of their asset mix in their overall portfolio? To answer this question I did some Googling and came up with the following articles:
- The Asset Allocation Decision: This article makes the claim that because real estate tends to be negatively correlated to equities, one can balance risk by adjusting the asset mix.
- Investor Home: Real Estate: Again, makes the claim that real estate is negatively correlated to equities and that this helps provide a cushion during bear markets.
- Dummies: Fitting Real Estate into Your Financial Plans: No discussion here, just a way to allocate for real estate in your portfolio.
Result: I still don’t have an answer. I stopped looking after about 20 minutes and left the above link list as is because I found a lot of information about REITs and overall statements that real estate is good to own, but none covering the topic of individual rental properties as a component of ones asset mix. I don’t know the answer. I need some help here. If anyone else has some insight into this topic, I would love to hear it.
I don’t think I’ve done it all, with owning real estate/rental properties, but I’ve done a few.
While in the military, I bought a house at each base I was assigned in the states, except when told I would be assigned base housing with in a short time. I hate to give money to someone else.
I once bought a house (that was
in excellent condition) for $1000. It had
to be moved from property a bank owned.
The reason we lost on that deal, was simple, permits were required from both city/county-no one knew what permits etc.
Once bought a lot at 6 pm for $2000.Got home and all ready had a phone call from a guy wanting to buy it. Signed
papers to buy and papers to sell before
9 pm and made $500 for the effort.
Formed a corp, and built 14 houses
while working at another full time job.
Owned as many as five rental houses
at one time. Heard every hard luck story in the world-why someone couldn’t pay the rent. The day the doctor told me and my wife that stress caused my heart attack was the day the last three rental houses
went on the market. Owning rentals is full time stress, whether you manage yourself or pay to have some one else manage them. There are way easier ways to make money.
There is only one way, I can see owning
a rental would ever make sense for me again. If one of my grandchildren were mature enough to handle it while they were
going to college; I believe there are some tax/college expense type savings that might make it attractive. I’ve known several people who have done this with college bound children/grandchildren with good results.
My recommendation on buying property for investment. Don’t
I have often thought about purchasing rental properties as a means of generating cash flow. Two things always hold me back: 1) the time it takes to find a really good deal and 2) the fear of having to deal with renters. You never know however….time will tell.
reading your post made me think I should answer this same question for the readers of my blog.
here’s my response
http://moneyshaker.blogspot.com/2005/10/living-off-dividends-or-how-to-invest.html