Real Estate

What percentage of your net worth should be invested in real estate?

  • Last Updated:
  • Dec 14th, 2020 6:37 pm
[OP]
Member
Nov 12, 2019
345 posts
541 upvotes

What percentage of your net worth should be invested in real estate?

What percentage of your net worth do you think should be allocated into real estate?

I am just curious about the investors in the sub thinks is best (without providing my own view so as to not affect the answers).
33 replies
Sr. Member
Jun 14, 2018
945 posts
1031 upvotes
I don't really think there's a specific percentage that should be a standard. Like as long as I know I have enough for retirement, I would probably put everything else into buying as nice of a home as I possibly can.
Jr. Member
Jul 10, 2020
143 posts
172 upvotes
0-100%
Depending on your risk tolerance, financial goals, what you are benchmarking against and lifestyle you wan to live
Best is a word that should be banned from investing forums.
This also varies where you live and work
RFD is hurting my wallet, too many good deals, my Blog
Jr. Member
Jun 19, 2009
127 posts
17 upvotes
Richmond B.C.
In 2019, Canadians under 35 years of age have an average net wroth of 75% in their home. Source: google

Everyone's financial situation is different. Instead of basing the home purchase off net worth, it is best to base the purchase off your annual income. Your income will dictate what size of a mortgage you can afford. If you are getting into real estate for your primary residence: set aside 3-6 months of rainy day fund and then use the rest of your available funds on the down payment.
Member
Jun 15, 2015
424 posts
457 upvotes
Thornhill, ON
Not more than 50%, again depending on your risk profile.
Deal Fanatic
Mar 27, 2004
5356 posts
3265 upvotes
Toronto
It changes over time no?
600k home
you buy the house with 20%

in 5 years its worth 900k

your equity in the house is like 450k at that point.

with real estate values going up so much in the past 2 decades. your assets will inherently be tied more and more into real estate. that's not a bad thing either. large majority of millionaires are from real estate investing. only bears don't know that.
Full-time Realtor
Deal Addict
Mar 2, 2017
1402 posts
2561 upvotes
Toronto
Odd question to ask when it's widely known the average Joe with a home will have almost their entire net worth tied into that home with some RRSP accounts as the rest (your run of the mill home owner). They don't have a choice in the matter in terms of how their networth is distributed. It's forced savings first (home), whatever they can scrub together beyond that is to max out RRSP/TFSA.

This should be asked of accredited investors and people who are actively investing, even then I am not sure what the conclusion will imply as an average is completely meaningless to anyone with a half a brain, age/risk profile/etc.
Realtor, Investor, CPA
Member
Jul 21, 2013
256 posts
124 upvotes
Toronto
Shouldn’t this question be worded in terms of at retirement ?

For young families the net worth would be well over 50%, if not closer to 100%.

I’d assume by the time people retire they’d ideally want it below 50%.

I’ve heard the 90- your age is his much you want in real estate but I don’t think that’s relevant today.
Deal Addict
Nov 24, 2013
1383 posts
737 upvotes
Toronto
Not more than 30%. It's important to be diversified from the start.
Deal Addict
User avatar
Nov 5, 2018
2916 posts
5186 upvotes
Toronto
I am not diversified at all. I am all in in GTA condos, with stocks only in my registered accounts.

Bears won't like it, but only because bears can't afford to buy.
Called the bottom.
[OP]
Member
Nov 12, 2019
345 posts
541 upvotes
RichmondCA wrote: Odd question to ask when it's widely known the average Joe with a home will have almost their entire net worth tied into that home with some RRSP accounts as the rest (your run of the mill home owner). They don't have a choice in the matter in terms of how their networth is distributed. It's forced savings first (home), whatever they can scrub together beyond that is to max out RRSP/TFSA.

This should be asked of accredited investors and people who are actively investing, even then I am not sure what the conclusion will imply as an average is completely meaningless to anyone with a half a brain, age/risk profile/etc.
Agreed. This question is mainly addressed to investors in this forum. Especially those with many investment properties. I am wondering whether/how they are diversifying their investments and how much are they overweight on real estate.

EDIT: I think I could have worded the question a lot better: For investors of this forum, are you diversifying from real estate investments? If so, how are you doing it?
Deal Addict
May 23, 2017
1303 posts
1217 upvotes
I started off 100% stocks, then when I started RE investing I aimed to do 50/50 stocks/RE.

That went out the window due to RE appreciating faster (thanks in part due to the high leverage) so now I'm well over 50% RE...but definitely not going to sell anything to "rebalance".

Going forward though if we experience a stockmarket crash I do plan to turn my focus back to stocks and ease off on RE for awhile.
[OP]
Member
Nov 12, 2019
345 posts
541 upvotes
jk9088 wrote: I started off 100% stocks, then when I started RE investing I aimed to do 50/50 stocks/RE.

That went out the window due to RE appreciating faster (thanks in part due to the high leverage) so now I'm well over 50% RE...but definitely not going to sell anything to "rebalance".

Going forward though if we experience a stockmarket crash I do plan to turn my focus back to stocks and ease off on RE for awhile.
Housing in general is high correlated with the stock market, chances are if the market crash, housing also won't be doing good as well.
The difference between most people's real estate holdings and their stock portfolio is that their stock portfolio is likely to be much more diversified whereas their real estate investments tend to be more local and thus susceptible to regional risks. So, let's say something bad happens to your city causing the real estate market to go down, this may not affect the general stock market (like what happened to Calgary real estate in the past decade). Ideally, you want to diversify your real estate holding across different regions, but that is hard to accomplish for most people.

For this reason, diversifying into uncorrelated assets such as gold or maybe even a bit of crypto (don't recommend) can give you better long term risk-adjusted return. Holding onto some cash is also not as bad as what some say, because cash is an also a relatively uncorrelated asset.
Member
Jul 21, 2013
256 posts
124 upvotes
Toronto
lpin14 wrote: Not more than 30%. It's important to be diversified from the start.
Is that realistic for 80% living in a major Canadian city ?
Deal Fanatic
Mar 27, 2004
5356 posts
3265 upvotes
Toronto
better question is assets not in primary residence
Full-time Realtor
Member
Nov 25, 2013
216 posts
167 upvotes
would the better way to look at investment properties using the deposit paid (not market value)? Assuming one takes on a mortgage, using market value will always put an overweight on RE. So let’s say if someone has 200k of cash/stocks and wants to diversify into RE, (assuming there is mortgage room/already has a personal residence) - would it be recommended to take half or 75%?
[OP]
Member
Nov 12, 2019
345 posts
541 upvotes
jaye23 wrote: would the better way to look at investment properties using the deposit paid (not market value)? Assuming one takes on a mortgage, using market value will always put an overweight on RE. So let’s say if someone has 200k of cash/stocks and wants to diversify into RE, (assuming there is mortgage room/already has a personal residence) - would it be recommended to take half or 75%?
I think it would be better to just take debt and asset calculations separately. Generally, separating debt into different categories isn't too useful (except for high interest ones such as credit card). I would just look at the total value of assists and determine the allocation from that.

For example, you own two investment properties worth $500k each. Plus $500k worth of stocks. Plus $250k worth of bonds, and $250k worth of cash:

Then your asset allocation would be
50% real estate
25% stocks
12.5% bonds
12.5% cash

This would be the same regardless of how much you owe on your properties.

Debt matters of course, and you can look at that in a few different ways. One of them is debt to asset ratio. Say if you owe $250k on each of your investment properties, then your overall debt to asset ratio is the following:

$500k/$2million = 25%
Deal Addict
Mar 2, 2017
1402 posts
2561 upvotes
Toronto
RaC1550 wrote: Agreed. This question is mainly addressed to investors in this forum. Especially those with many investment properties. I am wondering whether/how they are diversifying their investments and how much are they overweight on real estate.

EDIT: I think I could have worded the question a lot better: For investors of this forum, are you diversifying from real estate investments? If so, how are you doing it?
I think no matter how you slice it real estate remains the best option for most which is why it's so inflated relative to fundamentals. The general population has no access to the same lucrative deals that accredited investors do so residential real estate (because of leverage) is the best bang for your buck.

I am not one to judge or advise people, I personally went all in on RE early on because of what the leveraged returns looked like and had no access to other deals - like everyone else. I've significantly diversified from RE now, but am still active, just not to the extent I was before (all eggs in one basket). I also realize when you are starting out there just isn't enough capital to be diversified so you have to make your bets and go all in to get any sort of meaningful return (this is bad advise, just reflecting on what I did).
Realtor, Investor, CPA
[OP]
Member
Nov 12, 2019
345 posts
541 upvotes
RichmondCA wrote: I think no matter how you slice it real estate remains the best option for most which is why it's so inflated relative to fundamentals. The general population has no access to the same lucrative deals that accredited investors do so residential real estate (because of leverage) is the best bang for your buck.

I am not one to judge or advise people, I personally went all in on RE early on because of what the leveraged returns looked like. I've significantly diversified from RE now, but am still active, just not to the extent I was before (all eggs in one basket). I also realize when you are starting out there just isn't enough capital to be diversified so you have to make your bets and go all in to get any sort of meaningful return (this is bad advise, just reflecting on what I did).
I am not opposed taking big risks by heavily betting in one thing if there is a very strong investment thesis. However, I have also learnt, the hard way, that over allocating in one bet can lead to a huge set back that can take a long time to overcome.

It's great that you made the correct bet many years ago going all in for real estate. But do you really see the same opportunity still available today for real estate, especially here in Canada, Ontario, or the GTA specifically? Personally, I just don't see that same opportunity today, and the environment is far too risky to go all in on IMO.

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