Leverage Real Estate to Diversify Your Investment Portfolio

[Randy Smith]

As of this writing, the S&P 500 was down a little over 17% year to date, and in the same period, my passive investments have been kicking off 5-7% monthly distributions, one of my passive investments went full cycle in just 14 months producing 80% returns, and I sold my long-term rentals that produced about 20% returns annualized over the past 2-3 years.

Bottom line: I’m very glad that I invested heavily over the past 10+ years in the real estate space, and I believe that everyone should have at least a portion of their net worth in the hard, physical assets like real estate.

I’m not suggesting that everyone should have over 50% of their net worth tied up in real estate investments like my wife and I, but real estate investments can and should part of your diversification strategy to make sure 100% of your investments are not subject to the volatility of the stock market.

I’ve recently started tracking my investment allocations across the following categories: stock market in retirement accounts, personal residence real estate, passive real estate investments, cash and autos (anything with an engine – Yes, that’s a Dave Ramsey’ism). I regularly track those percentages much like I track the breakout of my stock market investments (Growth, Growth and Income, Aggressive, and International (Yes, that’s another Dave Ramsey’ism). Specifically, I have a strategy on how I want to invest my assets both in the stock market and in my real estate investments, and I readjust those amounts throughout the year.

Once you’ve decided on the percentage you want to allocate to real estate, you then must choose what type of asset class and what type of structure you’d like to place those funds. There are a ton of options here, but I’ve chosen to leverage the passive investing model where you can spread your funds across multiple asset classes, operators, geographies, and properties in increments as low as $5,000-$10,000. Specifically, my passive investments are currently distributed as follows: 66% single asset apartments, 5% apartment funds, 15% mobile home funds, 7% self-storage funds, and 7% ATM funds. My goal is to increase my exposure in non-apartment asset classes, but it’s hard to argue the results I’ve received in recent years in this space.

I realize many of the readers of this article are not investing in real estate outside of their personal residence yet, and the strategy I outlined above could be a little overwhelming. My suggestion is simply this, consider holding a portion of your net worth in real estate assets as an investment in addition to your personal residence. Once you’ve made that decision, pick someone that you know, like and trust that is working in this space, and they can help you navigate those first investment decisions. Before you know it, you’ll be smiling on the sidelines when the stock market roller coaster takes its next dive, and everyone will be wondering why your so calm, cool, and collected.

[Paul Moore]

Hi @Randy Smith! This is a wonderful post IMHO and I'm really surprised no one has commented on it. 

I completely agree. I've been a full time investor since I sold my company in the late 90s. Well, I actually I was a speculator for a long time and after losing money I am champion for investing versus speculating. I believe that investing is when your principal is generally on the safe side when you have a chance to make a return, while speculating is when your principal is not at all safe and you have a chance to make a return. I digress. 

I have migrated from investing in lots of things to mostly real estate over 20 years ago. I've migrated from residential real estate to all commercial real estate in the past decade. The goal of our fund is to do exactly what you said which is to provide diversification across recession resistant asset types as well as geographies, operators, etc. I really like your post and just wanted to thank you for it!