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Subject:  Re: Asset allocation Date:  2/26/2012  7:39 PM
Author:  Dwdonhoff Number:  70223 of 88542

Hi Doc,

In thinking about various asset classes where does fully paid off rental property fall? Would that part of a retirement portfolio be considered in a manner similar to bonds?

Income real estate is indeed its own class... and one most folks fail to fulfill and attempt to replace with alternatives & synthetic analogues. If you feel you are overweighted in real estate as equity, you can rebalance without an all-or-none sales event by simply leveraging the appropriate amount of equity to rebalance the cash value elsewhere. Obviously, long-term real estate leverage (even on investment property) is at lifetime lows, and fairly easy to outperform in returns from similarly safe alternative investments, so this should not be a hurdle to your planning.

As far as a prognosis on the validity of holding rental income assets (regardless leveraged or not,) I suspect we are unlikely to see even up to an additional 10% softening in the less stable of markets... and more likely a flattened future face value appreciation overall for probably 10-20 years plus.

YIELD, on the other hand, is just at the beginning of what is most likely to be a significant bullmarket, both in upward reach and longevity. The longer we go before a non-government subprime mortgage industry is allowed to re-sprout, the longer & stronger the rental demand market will be. Your income property will very likely outperform virtually any & every safe alternative income vehicle you own.

Hope this is helpful.
Dave Donhoff
Leverage Planner
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