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Old 09-15-2012, 09:42 PM   #41
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Join Date: Jul 2012
Location: Texas
Posts: 804
Originally Posted by SVHoper View Post
I agree with almost all of Cobra9777's view. The only thing I would say is that I personally let the non-income producing assets (home) influence my desired real estate % of my asset allocation. For example, if I didn't have $ sunk in home, I would increase my desired asset allocation percentage for real estate... but then I am tilted more heavily to real estate than most.
SVHoper, I can agree with that. I like real estate as an alternative to stocks and bonds over the next few years. Stocks are at a post-meltdown high with a recession looming, and bonds are poised to drop when interests rates normalize. Real estate is still very affordable by historic standards and starting to rise.

We own a large house that drives a lot of expenses (property tax, utilities, and maintenance). We are considering downsizing at some point in the future, which would reduce expenses and also free up about $200-250K cash to be added to the investment portfolio.

Were it not for the large house, I might be a little heavier weighted in real estate in the current asset allocation. I'm holding it at 20% since there is a reasonably high probability that part of my FUTURE investment portfolio is already exposed to that market. If I considered the captive $200-250K as part of my CURRENT investment portfolio (which I generally do not), my real estate allocation would be over 30%, which is at the high end of my comfort zone.

So, yes, it's a bit subtle, but depending on the personal circumstances and one's appetite for real estate, I can see how personal-use real estate might influence asset allocation. In most cases though, I think it's best to ignore these assets until they are actually converted to cash, especially if the probability of selling is low.

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