Real estate is often treated as a “special” asset class, but the way it fits into a portfolio is the same as any other holding: risk, return, liquidity, and time horizon.
Why include real estate? Historically low correlation to stocks, potential income, and inflation hedging.
Key constraints: Real estate is less liquid, may require leverage, and is concentrated by geography and property type.
A simple allocation framework
- Starter portfolios (net worth < $500k): Prioritize liquidity and diversification. Consider indirect exposure (e.g., public REITs) before direct property.
- Growing portfolios ($500k–$2M): Blend 5–20% real-estate exposure via REITs or a first income property if cash flow and reserves allow.
- Established portfolios ($2M+): Consider 15–30% total real-estate exposure across property types/regions, balancing public (REITs) and private holdings.
Risk checks
- Maintain 6–12 months of property expenses in reserves.
- Stress-test interest rates and 10–15% vacancy.
- Avoid over-concentration in one metro or asset type.
Disclaimer: Educational content, not investment advice.