What is the right percentage of real estate in your portfolio?

One crucial question for real estate investors is this: What percentage of your net worth should be invested in real estate? Many of our clients have a large percentage (75% and above) of their net worth in real estate. There is no right percentage for everyone but investors should consider the pros and cons of owning real estate.

Real estate, including your primary residence, can be a significant component of a well-diversified investment portfolio. However, the ideal allocation varies based on individual circumstances, risk tolerance, and financial goals.

Here are some general guidelines:

  • Conservative approach: 25-40% of net worth in real estate
  • Moderate approach: 40-60% of net worth in real estate
  • Aggressive approach: 60-75% of net worth in real estate
  • Ultra Aggressive approach: 75% and above of net worth in real estate

These ranges include your primary residence. For many, their home represents the largest single investment in their portfolio.

Pros of Real Estate Investment

  1. Potential for steady, long-term appreciation
  2. Regular income through rentals (for investment properties)
  3. Tax advantages, including mortgage interest deductions
  4. Hedge against inflation

Cons of Real Estate Investment:

  1. Lack of liquidity compared to stocks or bonds (often it can take 3-6 months to liquidate a piece of real estate).
  2. Higher transaction costs for buying and selling. (typical transaction costs can be 5% or more of the value)
  3. Ongoing expenses for maintenance and property taxes
  4. Market volatility and potential for value depreciation (this is especially true with higher interest rates)

Remember, diversification is key. While real estate can be a valuable part of your portfolio, it’s important to balance it with other asset classes to manage risk effectively.

We recommend consulting with a financial advisor to determine the right real estate allocation for your specific situation.

SIFF Investment Services Team

About SIFF

For over 20 years SIFF – Strategic Wealth Advisors Specializing in Real Estate Investments – has provided unbiased, fee-based real estate consulting to disrupt outdated real estate models. We are not realtors or agents. Our role is to educate and empower clients by objectively outlining all options. Our fee-only structure allows us to put client interests first. By taking an unbiased, consultative approach, SIFF aims to help clients prosper through wise real estate investments.

Call: 1 (415) 601-1051 | info@siffinvestment.com