Is real estate really the best way to finance your retirement?


  • For most of my career, I've been dumping all of my retirement savings into cash flowing rentals. In other words, I'm not investing my money into the stock market, mutual funds, or any other conventional retirement plans (the kind of thing a typical retirement planner would advise).

    The rationale being, real estate allows for much better tax breaks and I can also leverage other people money to build my real estate wealth. I can't do either of these things with stocks, bonds, precious metals, cryptocurrency or my baseball card collection.

    Is it stupid to go all-in on real estate?

    Part of me wonders if I should be putting money into an IRA just in case real estate doesn't work out. Say, if the market collapses or some other unforeseen thing happens to destroy my real estate portfolio.

    At the same time, there's something to be said for going all-in on one strategy. And this is really what most people do when they invest in the stock market anyway.

    What do you all do? Is everyone in this community a hardcore real estate investor, or do you diversify your retirement dollars into other things. If you're one who diversifies, what other things have you diversified into?

  • Mod LIM

    Matt Payne, I have one rental property, only because the idea of more landlording doesn't appeal to me personally at the moment, and have some money in notes / note fund, but obviously the value of those is correlated to real estate, too. Other than that (and my Beanie Babies collection, of course) most funds that I'm not using for land investing are in broad indexes in retirement accounts.

    To the question you asked about whether it's stupid to go all-in on real estate -- you mention that you've focused on cash flowing rentals, so without having to count on appreciation or flipping properties to another buyer before the music stops, it seems like there are only so many things that could go wrong. I suppose if all your properties were in a single market, and the economy there took a significant hit, you could possibly face falling rents and/or higher vacancies, but if you have some cushion on the cash flow numbers, and/or are maybe diversified on the locations, it's hard for me to see where your major risk exposure would be, so if the returns work for your needs, I'd probably resist any temptation to go chase the next Tesla stock or Dogecoin, etc., as those things will be far more volatile.

    You mention potentially funding an IRA. I wonder what your thoughts are on potentially investing in real estate through a self-directed retirement account? I suppose you effectively lose some tax advantage by holding real estate long-term in a retirement account (since there's no benefit from depreciation), but if the property does appreciate over time, it seems like holding it in a Roth account could be good -- i.e. no need to 1031 it when you sell, in order to avoid the tax hit, so the proceeds can be yours to do with as you like (in retirement, or up to the amount of your initial contributions to the Roth). Still trying to get a self-directed Roth 401k set up so I don't have direct personal experience here, but it seems appealing.

  • LIM

    I like what David Ludwig said about the risk exposure of having all your properties in the same market. If you can find ways to spread your investment dollars around to multiple markets, that can go a long way in protecting you from any wild changes in market conditions.

    Just speaking for myself, I've got some money in the stock market. Some of it is from the employer match that I used to have in my old W2 job and some of it is from a Roth IRA that I used to obsessively max out each year on Dave Ramsey's advice (this was before I discovered the land business).

    In my mind, the money I've got in these conventional retirement accounts is going to have a long, slow, boring ride until I retire someday. It doesn't grow fast but in the spirit of true diversification (not just having multiple types of real estate, but multiple types of asset classes), it's may way of putting some eggs in this other basket, just in case everything else blows up.

    You actually might find Fundrise interesting as well. I just put together my 4th annual review of it. You can see the full blog post here and the video is below:


  • Invest in what you know. Stan Druckenmiller, one of the greatest traders of all time, said, “Put all your eggs in one basket and watch the basket very carefully.” If you know your market for cash flow rentals inside and out, then why waste time buying stocks and bonds that you don't know or care anything about? It's like someone who understood Bitcoin to the nth degree 10 years ago and wanted to invest all their liquid capital, would you have been correct to tell them they should stay diversified? lol. Frankly, I think the whole balance portfolio thing is just propaganda to sell financial products to people who don't need them. You're way better off owning cash flowing assets than tying up all your capital in a 401k with extremely limited milquetoast investment options.

  • LIM

    Max Householder that's a pretty good point. I think the whole philosophy behind diversification is safety, but safety and fast/big/huge results usually don't go hand-in-hand.

    People who focus all of their energy, attention, and expertise on one thing really do have a big advantage over those who are trying to figure out a bunch of different things at once. It's probably fine to put all your eggs in one basket if you really are paying close attention to it and you know exactly how to steer the ship.

  • LIM

    Max Householder You could even apply the 80-20 rule to this. Put 80% in something you are really good at and then have 20% diversified just in case.


  • Sempervirens Land Chris Cole has put out some great research about what a balanced portfolio actually looks like. The notion is what would your allocation look like if you had to allocate 1 time and not touch it for 100 years. What's interesting is that it's definitely NOT the 60/40 stocks/bonds portfolio or 100 minus your age or whatever. While that risk parity strategy has worked for the last 30 years or so, at least since Volcker tamed inflation, in many ways it's actually a one-way trade and we've seen that in February 2018 and then big time in March 2020 where stocks AND bonds sold off together and the Fed panicked with a bazooka of liquidity to tame markets. What Cole shows in the Allegory of the Hawk and the Serpent is that an actual "balanced" portfolio is extremely difficult to achieve for retail investors. It's Equity, Bonds, Gold, Long Vol (volatility) and commodity trend following. Something like the Jakob Fugger portfolio (similar to the Perfect Portfolio) is pretty close, stocks, bonds (or cash), real estate, and gold. This is a far cry from most Americans who have basically home equity and a stocks/bonds target portfolio or just cash or, more likely, just debt. The later averages are all one-way trades with zero diversification in reality.

    Anyways, the Hawk and Serpent is an interesting paper, the PDF is about half data so it's a quick read of ~30 pages.

    https://artemiscm.docsend.com/view/taygkbn


  • Max Householder Point is, you could have the perfect mainstream "diversified" portfolio of stocks/bonds, large cap, small cap, every equity sector, etc. and still get run over completely if we shift to another 25-30 year inflationary "era" like the 1970s where "the death of equities" was declared because stock returns were so bad. Or look at Japan's lost decades where the Nikkei peaked and only just now, almost 30 years later just now reached that peak again. So anyhow, my main point is the mainstream "diversification" narrative is COMPLETE bs and unless you're a sophisticated trader it's very difficult to trade commodity trend or volatility. To access hedge funds that run a Dragon Portfolio type investment vehicle, you need to be accredited or have significant funds to put to work. Basically, for a retail (< $1m net worth) investor, you're way better off studying to understand 1 or 2 investment strategies (or own a small business) inside and out, develop a process to buy/sell/hold them that shows demonstrable results over time that meet your goals, and just bang away at them and forget about everything else (please turn off CNBC!!) until you get to the higher level where you can afford to pay for actual investment advice and implementation. Edward Jones or whoever DOES NOT provide investment advice, they're just relationship managers who keep you invested in products that make THEM rich, not you. Just my $0.02

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