Do I need to be talked off the RE ledge?

[ERD50]

.... Regardless, for myself, fundrise is not my preferred vehicle for RRE. My preferred vehicle for RRE is direct ownership. I currently own 9 rental properties and am under contract to buy another ....

And now we've come full circle to the diversification issue. Nine or ten properties is not the kind of diversification that most should be comfortable with.

Your reply to OldShooter:

LOL says the guy that keeps posting over and over again himself. Pot, kettle, black. The fact is there is significantly less information for the average investor on residential real estate (which is a $40T market in the US) than stocks ($50T) so I hope some folks will diversify outside of just equities and bonds. Far too many folks like you really do not do the avg person any favors by making them less diversified as they enter retirement.

I'd have to go back and look (I may have him crossed with another frequent poster), but I'm pretty sure that OldShooter has promoted (or at least is open to) diversifying into international stocks and REITS.

At any rate, I think I will take his advice and bow out of this. Good luck.

-ERD50

 

[Magus]

And now we've come full circle to the diversification issue. Nine or ten properties is not the kind of diversification that most should be comfortable with.

I disagree for a number of reasons, especially coupled with my other investments (which includes, stock, bonds, cash, gold, silver, digital currencies), but you do you. When I retire I'll own at least 20, and more likely 30, plus have 1/3 a mil or more in Fundrise and Crowdstreet, and a huge amount in public equities.

Your reply to OldShooter:



I'd have to go back and look (I may have him crossed with another frequent poster), but I'm pretty sure that OldShooter has promoted (or at least is open to) diversifying into international stocks and REITS.

At any rate, I think I will take his advice and bow out of this. Good luck.

-ERD50

Again, there are basically no RRE in public REITs. So you can invest in public REITs all you want - you are just buying commercial real estate in large urban cores for hotels, data centers, medical facilities, corp headquarets, storage, etc. That's fine, just know what you are buying, which isn't RRE exposure (much less macro diversified), which is a much, much more stable return. You are basically arguing that buying some public REITS covers what you should have RRE even though its far less than 1% of the stock market even though its value today is about 45% of the combined value of stocks and RRE. It would be like saying you have balanced stock exposure because you own retail stocks.

I am strongly in favor of owning stocks and residential real estate, and diversifying in general. But you can't get the latter in the public equities, period, and people investing in VNQ are not buying RRE across the country or even not across the country. Real estate in general is larger than the stock market but less than 3% of public equities. What you see in public equities is a small fraction of real estate, and again and most importantly - virtually zero residential real estate.

 

[clifp]

And now we've come full circle to the diversification issue. Nine or ten properties is not the kind of diversification that most should be comfortable with.


-ERD50

I think comparing stock diversification to real estate is very much a red herring

Sears, Macy, Costco, Walmart, and Amazon are all retailers, If you had Sears and Macy's over the last 10 years you lost about 60% of your money, if you had Amazon and Costco, you made about 1200%. That's why diversification is so important with stocks.

Rentals are far closer to a commodity, there are literally a dozen houses with same floorplan of each of my three properties in the same neighborhood, and 100s of similar (3 bedroom, 2 baths) within a mile or two.


I just calculated my rent increase for my Vegas property over the last year. 5.5%,6.3% and 6.8%. Annual appreciations is also with a point or two, despite them being in widely separate neighborhoods.

I've only had my Kansas City properties for four to years, but the rent increases have also been about 5%. Now last year was the first year that I saw high double digit appreciations. But unlike most stocks, price appreciation is only one piece of the total return for RE estate. When I start buying the KC properties the Cap Rate (rent/price) for my Vegas had fallen from 12-14% circa 2010-2012 to 6-8% 2016-2018. While the KC properties still had a cap rate of 12-14%.

Since 2000, the worse performing real estate markets are Cleveland and Detroit price appreciation has about 56%. The best two markets had LA and San Diego had a price appreciation of 270%. I bet the Cap Rate for Cleveland was probably 15% and you were lucky to get 5% in San Diego and LA. You were able to raise rents much faster in California, but not nearly enough to compensate with starting a 1/3 Cap Rate. I'm sure there is 2x difference in in total return be California and Cleveland but I'd very surprised it was more than 3 or 4x and much less variation within a city.

1/2 dozen properties in 2-3 market is probably more than adequate diversification.