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Updated over 9 years ago,
Real estate portfolio allocation
Hi everyone,
New to the site and have been reading through a bit of the forum. I came over here from the bogleheads blog, and got there from the mr.money mustache blog.
My cousin and her husband are based in a southern state, and my cousin is essentially a real-estate guru. She started out as a realtor, and decided to start picking up some properties herself, and now has a portfolio of about 10 doors. She is very intelligent, and from what I know, all her houses have positive cash flow.
However, since she started picking up real estate through her realtor business, I don't think she ever learned the basics of investments and portfolio allocation. I believe she currently has about 95% of their investable assets locked up in houses, and refuses to touch the stock market (vanguard passive funds). I'm slowly trying to show that the stock market isn't as dangerous as it seems to be. However, what I believe is more pressing is that she has all her investments in houses around one city, and that might put her at huge risk.
2 questions:
- Even with a rental strategy (rather than flipping), do you guys think there is risk in holding 95% of investable assets in real estate? According to her, it doesn't matter if the housing market crashes, because she doesn't need to sell the houses. All that matters is rent supply/demand. In fact, I've noticed that if the housing market crashes, or there is another financial crisis, rent demand in her area tends to go up and actually gives her portfolio better cash-flow.
- Is there an inherent risk with having all property within 50 miles of each other, all in one state? I can imagine there must be a positive to having the property spaced out throughout the US, or even internationally. That way, if state property laws change, or there is an oil spill in the area, then all the houses won't lose value together?
I'd love to hear if I'm actually wrong, and her strategy is sound. If not, I'd appreciate any strategy/diversification advice so that I can convince my cousins to re-evaluate their portfolio.
Thank you!