There is no magic number or mathematical equation to tell investors how much of their assets they should invest in real estate. While a general rule of thumb is to allocate between 5 percent and 20 percent of a portfolio to real property, individuals may invest more or less depending on their specific circumstances, including risk tolerance, income needs and tax circumstances.
For the most part, real estate is ideal for portfolio diversification and enhanced yield without the high level of risk that investors will find in the public equity markets. Moreover, different classes of real estate provide investors with a diverse range of options and benefits to meet their specific needs. For example, an investor who does not have the time to actively manage a property, make needed repairs and find tenants might be better served investing in commercial real estate, which typically has longer lease terms and often involve triple net leases for which tenants are responsible for maintenance, repairs, property taxes and insurance. Therefore, commercial real estate investors may simply sit back and collect passive income from tenant lease payments until they sell the property and potentially earn profits from its appreciated value.
As a word of caution, however, real estate investors must exercise patience and recognize that some investments in real estate are long-term commitments in illiquid assets that can restrict access to capital. As a result, if you will need access to your investable dollars in the next few years, a shorter-term real estate venture may be the best option for you.
With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email email@example.com.