My Optimal 2022 Profit Plan—And How To Achieve It
This time every year, I set aside a day to consider my investments big picture.
It’s not as easy as an annual stock portfolio rebalancing.
I’m a hard asset guy through and through, but I do recognize one disadvantage to a portfolio weighted as heavily with real estate as mine is…
Liquidity… or the lack thereof.
Depending on the market and the timing, it can take longer to sell a property than you might like. Sometimes in some markets you just aren’t going to find a buyer and have no choice but to hold steady, and some property types can be less liquid than others… land, specifically.
If your entire portfolio is long-term rentals in Phoenix, Arizona, then rebalancing—or, more accurately in this case, creating some diversification—is easier than accomplishing that objective for a portfolio that includes multiple real estate asset types in multiple locations.
As with any financial asset portfolio, one key consideration to take into account as you rebalance your real estate holdings each year is your age. As you get older, you’ll want to move from riskier investments to more secure ones.
You want to consider tax implications… to be sure to take advantage of any capital losses, for example.
And you should be working always to reduce the administration your portfolio requires. That rental that has done really well for you in Buenos Aires over the years might eventually become too much administration to deal with at some point if it’s your only holding in Argentina.
What Does A Well-Balanced Real Estate Portfolio Look Like?
No one breakdown will suit every investor, but long- and short-term rentals in different markets throwing off rental yields in different currencies can be a good start.
Consider a rental in your home state… and another in Medellín, Colombia, for example.
If your capital budget is bigger, expand to rentals in other markets and currencies… or maybe add land… or a commercial property.
My portfolio is probably overweighted in land.
However, at this stage of my investment career, estate planning is a priority. Land suits that agenda. It just sits there appreciating in value for my heirs.
For the past several years, my focus has been administration consolidation. That kept me from buying small random properties that, though tempting, would have been more hassle than they were worth… and motivated me to sell some trophy properties that were a nuisance from an admin perspective.
While liquidity can slow your rebalancing efforts, so too can finding a replacement property that makes sense for your portfolio. You could find yourself sitting on cash for some time while you’re looking for the right next acquisition.
I find myself in this situation right now, with some capital reserves that I’m not sure how best to place in the context of my portfolio.
Meantime, I’m considering liquidating further, looking closely at the returns for my short-term rentals.
You want to do this at least annually. If you hold several rentals, probably one property isn’t hitting the same net yields as the others. That could be because the rental market has changed since you made the investment… or it could be because the property has appreciated in value faster than market rents have increased.
Lief Simon