How Much Real Estate VS Stock Do You Own?

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How Much Real Estate VS Stock Do You Own?

Tony Nguyen
Investor · Tampa, FL · Member since 2010 · 377 posts · 56 votes

Hello all,

Right now, I currently have all real estate assets and no money in stocks. I met with a financial advisor yesterday, who is a trusted friend-of-a-friend, and suggests I put a chunk of money into tax savings retirement plans and invest into stocks. He mentioned a statistic that the "Ultra Rich" ($50M+ net worth) have 60% of their wealth in stocks and 40% is in real estate.

I was hoping to get some feedback from some of the people who have long term experience (or great references) in building a strong portfolio. I like to think I'm doing ok with real estate and hate to deviate from an investment I understand to start participating in a game like stocks where I have zero experience. The other side of the coin is I understand diversification could be a safer play should a collapse of the economy happen again.

Thank you and look forward to your thoughts!

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Paul Allen
Financial Advisor · Virginia Beach, VA · Member since 2017 · 502 posts · 508 votes
9y

@Tony Nguyen I am a financial planner/adviser, and I believe in diversification. You seem like a DIYer (because you're on BP!), so you should head on over to bogleheads.org and do some reading.

What I am saying is that 99% of financial advisers will recommend stocks* because that is what they do. If you're looking for a car and you go to a Toyota dealer they are not going to recommend a Ford. If you go to someone who manages stock portfolios and ask them how you should invest - well...guess what they are going to recommend? And...they will also be able to help you out for a fee.

You don't need to pay someone a fee to manage your portfolio. You might want to (just like some buy and hold REIs use a property manager), but you don't need to. Bogleheads can teach you how to build a diversified securities portfolio that you can manage yourself.

Best of Luck on Your Journey!

*Unless they are actually insurance salesmen masquerading as financial advisers. Then they will try to sell you insurance.

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  • Steve Bracero
    Real Estate Agent · Westboro, MA · Member since 2016 · 1k+ posts · 471 votes
    9y

    @Account Closed

    Thank you for the advice ! I will absolutely look for out of state and research further. I read with out of state that the right location and right management takes care of about 75% of the headaches... 

    Also great point about immediate returns- 

    0Reply
  • John B.
    Chicago, IL · Member since 2017 · 46 posts · 20 votes
    9y

    Just started with REI, so this discussion is very interesting.

    My current net worth is currently 100% in Vanguard mutual funds, spread across domestic, international, reits and bonds. As others have said, bogleheads.org is to stock investments what bp is to RE, so you should definitely skip a financial advisor and learn from there, it is really easy once you grasp the fundamentals.

    Over the next couple years or so, I would like to start diversifying it and reaching a conservative 25% in RE while I learn what's to learn in this craft, and over the next decade moving to a 50/50 split.

    Planning to go with buy-and-hold strategy.

    3Reply
  • Lance Robinson
    Investor · Scottsdale, AZ · Member since 2015 · 130 posts · 102 votes
    9y

    I'll chime in with the opposite of most on this thread. I'm actually 100% RE and 0% in stocks.  After my first deal, I was hooked, but kept investing in stock, after my second deal, I was a little more hooked, and slowed down. Once I hit deals 3-6, I was putting a small percent of money into stocks and eventually cashed that out shortly thereafter and have been buying ONLY Real Estate ever sense.  I don't contribute to a 401K or any type of stock retirement vehicle (I don't get an employer match though either - that would make me reconsider.) My return is so great on my properties that I couldn't go to back to stocks.

    Also to add - I look at IRR, even though my portfolio returns double digit CoC returns. My IRR is out of the realm of the market being able to hit it, my CoC could probably be achieved in the market by picking good growth stock mutual funds.

    4Reply
  • Kyle Krason
    Flipper/Rehabber · Nashville, TN · Member since 2015 · 11 posts · 8 votes
    9y

    Hey everyone,

    I entirely halted contributions to my 401k so that I could save up faster for real estate deals. I currently have now maybe about 10% of my net worth "trapped" in IRA's and my 401k. I also invest in out of state real estate and I think it's the way to go. Maybe I'm wrong on this and need correction, but I thought diversification was for average folk?

    -Kyle

    2Reply
  • Steve Bracero
    Real Estate Agent · Westboro, MA · Member since 2016 · 1k+ posts · 471 votes
    9y

    @Kyle Krason

    Interesting, I think I eventually want to move to majority real estate... I think it is beneficial you are not in IRA, or 401k

    0Reply
  • Lance Robinson
    Investor · Scottsdale, AZ · Member since 2015 · 130 posts · 102 votes
    9y

    @Kyle Krason Diversification is definitely not for average folks.  Stocks are more liquid, having a no-load mutual fund (think S&P 500) of an additional emergency fund that you just hold there for no reason could be beneficial (if 5+ years based on statistics.) It allows you a better long term holding vehicle.  No billionaires own 0 stocks. : )

    I should also add to my post, I do own an E-Commerce business as well that is on the side of my day job, so maybe that would be considered stock as I bought the company. If you look at it that way, then you could say I have 20% of my portfolio in stocks.

    0Reply
  • Kevin Nguyen
    Los Angeles, CA · Member since 2013 · 19 posts · 13 votes
    9y

    I'll chime in here and kind of mention what many have already said.... except that I'm all for stocks/bonds when they are in tax advantaged accounts ie. 401k, IRA, Roth. To me, it's just the buy/hold strategy for equities. I know it's boring, but it's a long-term play, and over 30+ yrs, it's really hard to ignore the power of compounding. They are extremely helpful for those with W2 jobs.... me myself being in a W2 high tax bracket.... really helps with taxes.

    Then, with post-tax dollars, I invest in RE and can further leverage to grow my RE portfolio, thus helping to reduce taxes further.

    In the end, it all comes down to diversification and your risk tolerance, and what helps you sleep better at night.

    0Reply
  • Max T.
    Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
    9y

    Just updated net worth. Things are doing well, but the real estate is appreciating rapidly.

    Real estate about 60%

    Stocks about 30%

    Liquid cash about 10%

    1Reply
  • Dan Rudolph
    Investor · Corvallis, OR · Member since 2015 · 92 posts · 57 votes
    9y

    IMO, now is really a bad time to buy into stocks.

    https://seekingalpha.com/article/4094461-measure-c...

    in the words of Mr. Buffett himself, "the price you pay determines your rate of return." Right now, this measure suggests investors are facing another lost decade just like the one that followed the last major stock market bubble.

    0Reply
  • Cody L.
    Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
    9y
    I can believe that the "ultra rich" put 60% in stocks. But I don't believe the ultra rich GOT that way from stocks. Just like I'm starting to move into NNN properties. It seems to be a course that many apartment guys take once pure cash flow and absolute returns are not as high of a priority.
    1Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Mike Nelson:

    Good advise here.  I did some research on mutual funds and discovered how what I thought was the "nominal" fee managers charge adds up when compounded over years, and that is important to be aware of fees and minimize them when possible.  Some folks even recommend index funds because of their low fees and historic returns.  Some managers and advisers are excellent, but many are mediocre.

    I agree and would also like to add that this also applies to REI. What you may consider a "nominal" fee property managers charge adds up when compounded over years as well, and like stock managers many PMs are mediocre at best and likely no better at managing your property than you would be. A typical PM will charge 15% (8-10% management + ~5% extra "junk" fees for re-lease, maintenance, etc.) of your GROSS rents, which if you believe in the 50% rule (which you should not, but for illustration's sake) then that is 30% of your NET cash flow, and that is if you own the property outright ... if there is a mortgage payment then that percentage of your cash flow that goes to the PM is even higher. A mutual fund charging a 30% management fee would be considered highway robbery, but it happens every day in REI if you don't watch it.

    0Reply
  • David Faulkner
    Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
    9y
    Originally posted by @Dan Rudolph:

    IMO, now is really a bad time to buy into stocks.

    https://seekingalpha.com/article/4094461-measure-c...

    in the words of Mr. Buffett himself, "the price you pay determines your rate of return." Right now, this measure suggests investors are facing another lost decade just like the one that followed the last major stock market bubble.

    I don't disagree, but would also say that now is not the best time to buy into RE either by most value metrics and historical pricing, especially multi-family. Sure, you can still find deals just as you can still find deals in stocks if you know how to look and look hard enough. That is the conundrum of our times though ... everything seems to be getting more correlated, so stocks are high, RE is high, bonds are crazy-stupid high ... I don't wish to try to "short" the world, but it is a tough market(s) out there and an extra bit of caution and conservatism is warranted all around. For me personally, when I see folks on BP who have no experience as an investor in a down market confidently claiming that they can't lose money and that they are not at the mercy of market forces, a part of me thinks it is the beginning of the end (for this cycle).

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    9y

    I have some friends that have tens of millions in stocks and higher. They tend to hold for long term and when some boogey man news comes out and makes others sell off in a panic and run for the hills they just gobble up more shares at a reduced price.

    Companies will have occasional patterns of doing bad and doing good but the key is if there is a massive shift in a bad direction from which they cannot turn around. That is when someone might sell early before a big devalue event happens.

    I love real estate and understand it. Stocks are a full time gig to do on a high level. 

    I agree that diversifying to diversify makes no sense. Sometimes people come to me on commercial real estate and say what about buying 2- 2 million dollar properties instead of one 4 million? I say if you can find an amazing property at 2 million 2 times then maybe. Often the 4 million dollar property is amazing and the stuff in just the 2 million range is okay. Would rather own 1 amazing property than 2 mediocre ones just for diversities sake. So every decision has to be taken into context and blanket thoughts or strategies do not always best fit a specific situation. 

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    4Reply
  • Kevin Nguyen
    Los Angeles, CA · Member since 2013 · 19 posts · 13 votes
    9y

    Here's an interesting post from Sam over at financial samurai

    http://www.financialsamurai.com/what-percentage-of...

    Readers over there prefer stocks, but of course BP'ers will prefer RE

    0Reply
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