Portfolio Diversification thru real estate

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SpaceX
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Joined: Sat May 30, 2020 11:54 pm
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Portfolio Diversification thru real estate

Post by SpaceX »

I have a question for those sophisticated investors on this website that believe investing in real estate plays an important role in portfolio diversification, maybe even more during times of rising inflation. I've been investing actively in commercial real estate thru multifamily syndications as a Limited Partner (passive investing) for the past 3 years, but I was curious if anyone that has invested in REITs as their primary exposure to real estate have looked at other asset classes within this sector such as industrial real estate and what avenues have they used in trying to achieve this added level of diversification. I've looked at REITS focused on industrial real estate, but I was curious if others have considered investing in ETFs or mutual funds for this particular asset class?
VanguardInvestor1972
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Re: Portfolio Diversification thru real estate

Post by VanguardInvestor1972 »

Like you, I have diversified into private real estate syndications over the past few years. The bulk of my assets remain invested in a three-fund BH approach in a mix of taxed and tax-advantaged accounts. I dollar-cost-average every two weeks into these core accounts based on my BH three-fund AA. But I have moved to about 20% of my total net worth in cash-flowing private real estate syndications as part of a revised overall AA. I know this approach is not popular here on the BH site but it has been serving me well as an adjunct to the core BH approach. Now that I am at the 20% mark for the private real estate I am just re-investing the cash flow and gains into the real estate syndication portfolio; not ready yet to hang 'em up and don't need the income for our monthly expenses.

I have looked at REITs for various tilts and have posted similar questions to this site. The advice I have gotten on this site has been pretty dismissive of doing so (that VTI has exposure to real estate firms etc.). I have also not found any REITs that seem superior to the direct, private real estate syndications that I can find for whatever exposure I seek (whether multi-family, self-storage, industrial, etc.). I am not interested in big retail or hotels right now so those REITs do not appeal for other reasons.

Linking to an old thread when I asked about REITs (and TIPS) as a tilt: viewtopic.php?t=283421 -- hope that worked.

All that by way of a reply: I am sticking with the BH core exposure plus direct investments in private real estate syndications for the cash-flow/appreciation play over time--not REITs. Hope that helps as one other person's opinion... and good luck!
ge1
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Re: Portfolio Diversification thru real estate

Post by ge1 »

I invest in real estate by buying publicly traded REITs and through platforms like Fundrise and YieldStreet. Specifically one of my Yieldstreet investments is industrial as I wanted diversification from my other investments. Still early days, so far it is performing as planned.

As a side note, I did redeem some of my investments in Fundrise; they had an amazing run over the last 15-18 months and I figure I’ll get better returns in the stock market at this point.
chassis
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Re: Portfolio Diversification thru real estate

Post by chassis »

SpaceX wrote: Sun Jul 03, 2022 4:58 pm I have a question for those sophisticated investors on this website that believe investing in real estate plays an important role in portfolio diversification, maybe even more during times of rising inflation. I've been investing actively in commercial real estate thru multifamily syndications as a Limited Partner (passive investing) for the past 3 years, but I was curious if anyone that has invested in REITs as their primary exposure to real estate have looked at other asset classes within this sector such as industrial real estate and what avenues have they used in trying to achieve this added level of diversification. I've looked at REITS focused on industrial real estate, but I was curious if others have considered investing in ETFs or mutual funds for this particular asset class?
Industrial real estate (warehousing) is doing well. This can be invested through REITs or as an LP as you mention. Real estate niches are like any other business - they have favorable and unfavorable drivers. I am not an etf person - funds usually contain easily-identifiable stinkers. I don't like to hold stinkers.

eCommerce is driving pure warehousing - classical warehouses for distribution purposes. eCommerce might have 10 years of above-trend growth remaining, then it will become a normal part of the 1%-2% growth overall economy.

New properties are being constructed capable of multi-use, for example properties capable of both/either warehousing and/or manufacturing. Manufacturing in my opinion is in a long term bull market, and will require (is currrently requiring) new factory construction. So industrial real estate should see tailwinds for the foreseeable future based on strong but fading growth in eCommerce tenants, and long term growth (albeit modest) from manufacturing tenants.

I have special knowledge in some of these areas.
Last edited by chassis on Mon Jul 04, 2022 9:21 pm, edited 2 times in total.
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AerialWombat
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Re: Portfolio Diversification thru real estate

Post by AerialWombat »

deleted
Last edited by AerialWombat on Thu Aug 25, 2022 7:16 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
Outer Marker
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Re: Portfolio Diversification thru real estate

Post by Outer Marker »

REITS are already represented at market weight in Total Stock Market. I don't see any need to overweight them. Plus, I own a home, so I'm effectively overweight real estate by default.
dbr
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Re: Portfolio Diversification thru real estate

Post by dbr »

Larry Swedroe in his book on alternative investments considers REITs to be "good" alternatives with diversification benefits. You could read there.

Naturally adding REIT stocks to a stock and bond portfolio is completely different from owning actual real estate as part of one's financial plan. Exactly now to include actual real estate in the modern portfolio theory is problematic.
visualguy
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Re: Portfolio Diversification thru real estate

Post by visualguy »

AerialWombat wrote: Mon Jul 04, 2022 6:38 pm A slight majority of my retirement assets are in residential rental properties. I also commit a small portion of my bond funds to Groundfloor hard money loans.

More than anything else I've done in my life, it's real estate that allowed me to FIRE in my 40s. I'm also really, really appreciating the fact that real estate is a nice inflation hedge right now. I also appreciate the fact that my rentals do NOT provide readily reported price swings for seven hours every trading day, from a behavioral finance perspective.
+1

Direct real estate has been my best investment, and I expect it to be even more so in the future.
dbr
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Re: Portfolio Diversification thru real estate

Post by dbr »

visualguy wrote: Tue Jul 05, 2022 11:01 am
AerialWombat wrote: Mon Jul 04, 2022 6:38 pm A slight majority of my retirement assets are in residential rental properties. I also commit a small portion of my bond funds to Groundfloor hard money loans.

More than anything else I've done in my life, it's real estate that allowed me to FIRE in my 40s. I'm also really, really appreciating the fact that real estate is a nice inflation hedge right now. I also appreciate the fact that my rentals do NOT provide readily reported price swings for seven hours every trading day, from a behavioral finance perspective.
+1

Direct real estate has been my best investment, and I expect it to be even more so in the future.
This can be true of many people, but it has nothing to do with diversification. It might even suggest holding nothing but a real estate business.
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