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How does your Home factor in your Real Estate investment?

#1
Wink 
Do you consider it a piece of RE?
I'm light on Real Estate according to the Portfolio Analysis.
I don't want to invest in REITS at this time.
When I factor in my residence, I have a sizeable RE investment that I live in.
According to my reading of this forum, there is no good way to invest in Real Estate other than ownership.
I don't want additional properties but see the appreciation around and would like to participate.
Then there's the RE taxes and fallout from Tax Reform.
OTOH, it's a lot of $$$ if the house is sold with a one time Cap Gains exemption.
Pigs get slaughtered.
 
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#2
My house is where I live. I don't consider it an investment. But if I did, and even if it didn't grow in value (sales price equaling purchase price), then I see it as living rent-free for years.

My portfolio is a completely separate entity to my way of thinking. Home is safety.
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#3
It rather depends on what you mean by the word investment.  On the one hand I agree with John.  But …..  but …. but.
 
Why do I have an "investment portfolio?"  To help give me a feeling of comfort and safety and security, that I can take care of myself and my spouse as we age.  And that's also pretty much why we own a house.  Do you have LTC insurance?  Do you consider that an investment?  For the younger (well, younger than me) crowd, how about health insurance and life insurance? If you don't have those as distinct items, then you have potential costs that you'll be covering in some other fashion - possibly by drawdown of your "investment portfolio"  So isn't it at least somewhat sensible to consider the cost avoidance packages as a form of investing?
 
What prompts the question?  Merely the idea that PA says you are light on RE? But the PA is just somebody's idea of a "balanced portfolio" (whatever that means).  That's a one size fits all concept.  And while one size may fit most, it doesn't necessarily fit well.  I think you need a better reason than "that's what the PA says"
 
For my own uses, I don't consider the house as part of the investment portfolio.  But I do consider it in overall asset balance/allocation.  And if I ever need to talk about a "diversified portfolio" (because some "advisor" or tool "recommends" it, I'm more than willing to include all assets (including the house) as a broadly defined, broadly diversified resource base.
 
Along this same line, how do you put a private pension in the mix?  In one view, it simply reduces the cash flow you need to extract from your investment portfolio.  But in another view, those "one size fits all 'rule of thumb' guidance advisor/tools" usually include a significant bond percentage, and (if there is any rationale behind the suggestion) it's usually to provide some highly reliable, low risk income.  And the tool usually does not consider the pension.  So while I usually take the first, view, I'm willing to view the pension as if it were the cash flow from a bond portfolio, and think of asset diversity as if I had the bond rather than the pension.
 
My bottom line - if the PA reccy is your issue, then -- burn that tool, you don't need it.  But if you're not that confident, then go right ahead and add your house to the balance and tell the tool to buzz off.
 
If some human can look at your total asset collection and give you a specific reason why youwould be better off with more RE, and if that reason makes sense to you and you are comfortable with it, then, and only then, add some RE.   (Now repeat that last sentence with any other "alternate investment" you care to think of ---  gold, collectibles, commodities, foreign currencies, crypto currencies, tulip bulbs, annuities, --- make the list as long as you like.  Just have a reason better than one size fits all diversity.
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#4
System 101, Great answer. I have never been a good real estate investor, so I do not invest in it just because any tool or advisor tells me I am not sufficiently diversified, if I do not invest in it.

In fact, every advisor tells me I should have bonds just because I have none. They never ask about any pension income and I have 2 traditional pension plans and social security. I am currently only collecting one of them and will collect the other plan and social security when it makes sense to do so.


Then they tell me I need to have long term care insurance. Again, maximizing the income from the 2nd pension and social security with eventual MRDs from my retirement plan should be sufficient, as my other expenses should be minimal at that time. And I can always get a reverse mortgage on my home and rent it out, if additional income or funds are needed for long term care expenses.

I think that they would probably tell Warren Buffet he needs bonds, too.


Do not do something that does not make common sense for you just because they tell you to.
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#5
I agree with Systems101,  I want dividends to play a role in my retirement income, so I am underweight in sectors that don't pay much in dividends (e.g. Tech).  I am overweight in Utilities for the same reason.  If you are going to try to match the market, just get a total market fund and be done with it!  The idea that sectors rotate and having a leading sector balance out a lagging sector has merit in the accumulation phase or if you are taking the approach that sales from the portfolio rather than dividends is the main means to finance a big goal like college for the kids or retirement.  I am retired and prefer the steady stream of dividends going to cash to supplement my income and then only buy/sell based on merits of the company/fund/ETF with some consideration of the sector the company is in and where that falls in the various business cycles.  Thus, the overweight/underweight info in the analysis tool is by design and in no need of adjustment.
 
I also agree that, with pensions and fixed/immediate annuities in the mix, the rationale for bonds is reduced.
 
I consider the house to be a place to live.  At some time I may have to sell or take out a reverse mortgage if something unforeseen and catastrophic happens.  It all plays out within normal ranges, the house will end up as specified in the will/estate plan.
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#6
I see my home as both, a residence as well as an investment. When I first purchased the land my home sits on, it was intended to be just an investment at the time, then, later we decided to build our home on it. And of course since it is our home we derive no income from it, but the appreciation has been amazing having grown about 6.5 times over the last 15 years.....I certainly classify that as an investment.
 
In addition to our home we have 7 other direct investments in real estate which make up about 60% of our net worth. And like Systems101 says, just because it is somebody`s idea of what a balanced portfolio should be......Doesn`t mean you should follow it.

I am not sure why you would be opposed to owning more real estate outside of your home. I do hear many people say it is too much work.......I disagree with that.....while it can be a lot work depending on what you buy and how you structure the leases.....it can also be made easy. For instance....we own some parking spaces in a large city in a prime downtown location. It is a 9 story parking gargage that operates as a condominium.....how much maintenance do think is involved? None...Nada...we lease it out and collect the rents....the renter pays the condo fees and the condominium is responsible for paying the taxes and maintaining the building. It is the highest yielding of our RE investments. I used to own 7 of these, but traded 4 of these for some commercial office space.....the renter has been in there forever...again...condominium space....renter pays condo and taxes and is responsible for inside maintenance.....all we do is collect the rents, and as long as you get good tenants, the rent has never even been a day late. Other properties are similar circumstances....some ground floor retail space in high rise condo in the downtown  commercial district...prime location in our state capital.....and also a couple of 1/1 apts in highly desirable building....we do have to lease them out when they become vacant....like late last year when a tenant we had for 7 years had a transfer of job....but tenant recommended a friend and this friend picked up the lease from the day the tenant moved out....easy.

Taxes on properties outside of the USA are generally much much less.

The one investment I do have outside of direct RE ownership is one REIT which I consider to be undervalued at this time but has also returned an average of 17.5% with dividends reinvested over the last 2.75 years that I have owned it. I would consider this a good return, especially for a passive investment.
 
I see RE as being one of the best investments one can have and one of the safest.
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#7
I plan to have 20% in real estate.  In my case it currently includes one rental and some REIT funds and puts me at about 15% of my portfolio right now.  The reason I want 20% is because it hopefully moves differently than the stock market and acts as a buffer.  I would have done much better if I had purchased more rentals with less down on each one, but I don't enjoy the concerns of a landlord.  Our own home isn't counted as an investment because it would have to be replaced should we move.  If we move out of state the rental will be sold and that money can go anywhere.
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#8
Real estate certainly isn't a liquid asset, but I do track equity as part of net worth. The main home is just like others have said - first and foremost a place to live. We also own a rental which a daughter manages for us in Sacramento - and it pays for itself because of a small mortgage. It has also appreciated about 20% in value in the past two years. An unexpected benefit is depreciation, which can reduce EBT. The rental is clearly an investment, owned in the family trust. The main home does have significant equity, but I see that almost like insurance - if we have to more in old age, it will be to either assisted living of a much smaller house - likely in a cheaper area. Either way that equity could make life easier and preserve commensurate assets in the IRA and brokerage accounts.
 
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#9
My home, which is paid for, is our shelter. I never viewed it as an asset though I realize that for many people it may be the biggest asset they have. For them, it can be leveraged or sold to produce resources to pay for skilled nursing home care when that event happens to us. As for the asset, mine has absolutely not been a good investment. I've lived here (TX) since 2002 and with the improvements and money I've spent on it since, never expect to get the same amount out of it. Property tax, maintenance, upkeep (new paint job every 10 years or so, utilities and yard work consume about $30k per year. I believe I could sell it for $360-400k if I wanted to. But I love my home more than anything so I wouldn't ever do that. My executor will do that after the second to die. If any of my kids want it, they'll pay market price for it. I do own a vacant lot next door to me that I will give my son when he moves back to his home town next year. One day he can build a house on it when he can afford it.
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#10
Great thoughts and replies, thanks.
I'm not just following an assessment tool either.
I've had real estate in the past and relative success as well.
A rental that I kept for a decade is one example.
I lived in it for 2 years and then bought a house.
But if you think back to the 80's, RE was very illiquid and it didn't sell until '90.
Of course that's when the market rolled upwards.
We did well on the first house and leveraged it into an upgrade, current home.
I also bought some land for a cabin which turned into a gated, year round community.
Sold it a year before the peak because projected expenses were about to skyrocket.
If I could set up a situation similar to EricL with either or both sons who have sweat equity, that would be good.
I don't have fond memories of being a landlord either.
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