Using Real Estate as an Asset Class in Your Retirement Portfolio

In a recent article Real Estate Takes Its Place as the Fourth Asset Class author David Funk, reflects on the historical shift in institutional investors from viewing real estate as an “alternative investment” to the current trend of many fund managers to permanently shift up to 10% in a portfolio position from stocks, bonds and cash to real estate.

mansion-412090_1280-300x174“What,” you say?  Less than 10% allocation in real estate investments for large institutional investors?  For family funds or individual investors active in the real estate market 10% seems dismally small.  Those who own significant real estate portfolios prefer real estate for: control, tangibility, cash flow, inflation hedge, tax benefits.

But how much is “too much” or “not enough”?  Since the advent of the DIY Network and the like, everyone- it seems—is a “cash flow” investor, fixer/flipper and wholesaler. The buzz is all about “low inventory” and “cash sitting on the sidelines” and the prices keep climbing.  Now the question on people’s minds is “when will we see the next downturn?”

One could ask the same question of the stock or bond market.  We want to make wise investments that are going to withstand the next downturn.  So, how do you make that determination? Getting your bearings on what kind of real estate to invest in can be daunting. However, it can be one of the best investments in your portfolio if you do your research, implement your core strategies and stay disciplined.

So what are the advantages of real estate as an asset class in your portfolio?

A significant benefit is that real estate market cycles are distinct from equity and bond market cycles, allowing for diversification during market fluctuations. Real estate also produces multiple income yields such as rental revenue, capital appreciation and tax breaks. You can benefit from relatively high, consistent income returns while simultaneously protecting against potential inflation. Finally, real estate provides a degree of control over management and revenue producing potential that equity and bond investments lack.

There are drawbacks to real estate investment that also should be considered. Real estate investments come with increased management requirements. Similarly, the costs of buying, selling and operating real estate are substantial as compared to other asset classes. Also, diversifying your real estate portfolio is difficult unless you are a successful and consistent investor or you participate as a part of a pool or a public security, such as a REIT.

If you are ready to add real estate to your retirement portfolio you should develop your own personal real estate analysis matrix. Start by asking yourself the following questions:

How much do I have to invest and how?

What kind of real estate should I invest in?  

Where will I purchase? California? Out of State?

What structure will I use to own this asset?

What is my Risk Tolerance – Retirement Date – Headache Factor?

Whether your portfolio vision is 10% in real estate or 90% in real estate, understand your personal analysis matrix.  If you are new to investing, start small – grow the asset class over time while you assess your risk tolerance and firm up your knowledge base. Most of all, Research…Research…Research.

At Chase Law Group, P.C. we have experienced real estate attorneys who can advise you on every aspect of real estate ownership and investment. Contact us at (310) 545-7700 or visit to find out how you can maximize your retirement portfolio by investing in real estate.