I'm thinking about buying some real estate to diversify my virtual wealth - agree?

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CULater
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I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by CULater » Thu Feb 22, 2018 1:33 pm

I don't own a home or any property and never have (always been a renter), but I'm thinking about buying a coop apartment or condo, and a vacation condo too. I'm a retired senior and it might seem to make more sense to be getting rid of homes and vacation properties instead of buying them. However, I'm getting more and more worried about having all of my retirement wealth in virtual, electronic form (403-b, IRA, Roth IRA) and subject to whatever unexpected things can happen to that stuff. It's really nothing tangible, just a bunch of bits and bytes on computer servers somewhere. Things like massive internet/cyber attacks, cyber security risks, various screw-ups by financial organizations, and all that. What would I do if some or all of my cyber-wealth was lost, breached, inaccessible for long periods of time, etc.?

It occurs to me that diversifying one's assets should perhaps include diversifying the form of those assets, and not having everything in electronic form. One of the most obvious ways of doing that is to own tangible assets such as the property you live in, and perhaps other types of property as well. So, I'm actually thinking about liquidating a significant fraction of my digital, financial wealth and converting that into a home and perhaps second vacation condo as well. This may seem to be contrary to the usual thinking.

Wondering if others are thinking or acting along similar lines. I'd be interested in discussing this further and pros and cons.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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KlingKlang
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by KlingKlang » Thu Feb 22, 2018 1:52 pm

Are you going to be renting out these properties or using them personally? If you rent them out you have just gotten yourself a new job of being a landlord. If they are for your personal use you have just exchanged income producing assets for expense producing assets - property taxes, coop fees, insurance, maintenance. Of course you have to compare these with the elimination of your current rent payment and any utility you get from a lifestyle upgrade.

In the case of a nationwide electronic financial meltdown I think that it is highly unlikely that you will be able to find someone with a suitcase full of cash who is looking to purchase your property. Failure of a single financial institution can be mitigated by spreading your holdings between several institutions.

gips
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by gips » Thu Feb 22, 2018 1:54 pm

not really sure real estate will be worth much if all our digital data is erased. one of my tennis partners is a retired hedge fund guy, he's buried gold on his property, why not try that? actually, guns may be more valuable than gold in that scenario...

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Smorgasbord
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by Smorgasbord » Thu Feb 22, 2018 1:59 pm

It seems like putting a kilogram or two of physical gold in a safe deposit box would allay the same fear and be far easier than buying a rental property.

jebmke
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by jebmke » Thu Feb 22, 2018 2:06 pm

Can be a lot of work and complicates life for your heirs.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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goingup
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by goingup » Thu Feb 22, 2018 2:18 pm

CULater wrote:
Thu Feb 22, 2018 1:33 pm
Wondering if others are thinking or acting along similar lines.
I'm not thinking along those lines.

If I were, though, I'd go to a nearby bank branch or CU and buy a 6-figure CD. Then when I drove by I could imagine my CD sitting in their vault, collecting dust. :wink:

A person could go nuts thinking about all the existential threats in the world. It's more likely you'll blunder if you stray into an area of investing that you know nothing about.

itstoomuch
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by itstoomuch » Thu Feb 22, 2018 2:26 pm

Sort of, OP. I only agree mostly with myself and sometimes conflicted with my agreement.

We have one direct heir. Heir is a Millennial, heavy in Stocks/Indexes.
We are seniors, with enough Income. 1) How and where we get the Income, is not material to us; 2)I wanted streams of Income and RE was a way to achieve another and different stream(s) of Income; 3) Heir receives RE in a stepup on our passing. But I control the RE and enjoy certain tax benefits; 4) Heir has a job related to RE. Having RE that he can manage is good experience and could make him more valuable at his workplace; 5) Is a different asset class. In total, heir's stock Equity (401, Roth, IRA, taxable ) and our RE makes a diversified portfolio for both of us.
YMMV :annoyed
Last edited by itstoomuch on Thu Feb 22, 2018 2:35 pm, edited 1 time in total.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

ThriftyPhD
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by ThriftyPhD » Thu Feb 22, 2018 2:34 pm

CULater wrote:
Thu Feb 22, 2018 1:33 pm
However, I'm getting more and more worried about having all of my retirement wealth in virtual, electronic form (403-b, IRA, Roth IRA) and subject to whatever unexpected things can happen to that stuff. It's really nothing tangible, just a bunch of bits and bytes on computer servers somewhere. Things like massive internet/cyber attacks, cyber security risks, various screw-ups by financial organizations, and all that. What would I do if some or all of my cyber-wealth was lost, breached, inaccessible for long periods of time, etc.?
How is home ownership recognized? If your city clerk's office is using an electronic database for registering deeds, then your right to that property is 'just a bunch of bits and bytes' as well. Or maybe they keep paper records, in the basement of the clerk's office, but no one every checks them and that's now the only copy. It floods. Sure you might be able to track down some records, but it could take months/years and during that time you would not be able to sell.

Your retirement/brokerage assets are probably backed up in so many different locations, at so many different companies, that it would be impossible for all of the data to be lost. Now, I would keep a copy of statements to help in the highly unlikely scenario where that takes place, but the money is likely to be returned much quicker than if you have to go through the comptroller at your township office, who is on leave for the next 2 months. With your electronic assets, you can also have them stored at numerous brokerages. Split your accounts between Vanguard, Schwab, Fidelity, Ally, Merrill Edge, Etrade, etc. If one has a hiccup, you're still 90% whole while the issue gets fixed.

Just avoid having everything at "Cousin Bill's Brokerage and Bait Shop" and your risk profile is quite small. Concentrating everything into a property INCREASES your risk profile, but mostly for diversification reasons. And, as has already been mentioned, you'll be trading income producing assets for assets that cost money.

delamer
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by delamer » Thu Feb 22, 2018 3:10 pm

Let’s say you buy a home that you’ll live in, with no mortgage. So you have eliminated your current rent payment and reduced your monthly cash needs.

But that’s it, as far as housing goes. You still have to pay utilities, property taxes, homeowner’s insurance, plus repairs/maintenance to keep the place in good condition.

And owning your home does not in anyway reduce the need to pay cash (or have credit) for your food, transportation, medical, or other bills.

So your solution does not solve your concern, which is the inability to access your financial resources. Afterall, you can’t sell off one bedroom in your house to pay your bills.

What will help is to have a couple checking/savings accounts in different banks so if one bank is hacked you still have access to cash. Same for having more than one credit card and more than one investment account at different holding companies.

itstoomuch
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by itstoomuch » Thu Feb 22, 2018 3:47 pm

Warning. Some BH may not like following statement.
There are similarities between GLWB Annuities, both Variable and Fixed-Indexed, and RE, either held for Income or diversification.
Ymmv
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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Watty
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by Watty » Thu Feb 22, 2018 4:13 pm

CULater wrote:
Thu Feb 22, 2018 1:33 pm
I don't own a home or any property and never have (always been a renter), but I'm thinking about buying a coop apartment or condo, and a vacation condo too.
Buying the place that you live in can make a lot of sense so I would look at that question separately from buying some sort of investment property.

A huge problem with owning investment property while you are a "retired senior" is that even if you have a property management company you will still need to oversee them and occasionally switch property management companies. Even if you find a great person to manage it for you they will eventually retire or change jobs. Trying to select a new property manager when you are 90 and in a nursing home could be a big problem.

If you want investment property then I would look at buying a REIT.

not4me
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by not4me » Thu Feb 22, 2018 4:24 pm

CULater wrote:
Thu Feb 22, 2018 1:33 pm
It's really nothing tangible, just a bunch of bits and bytes on computer servers somewhere. Things like massive internet/cyber attacks, cyber security risks, various screw-ups by financial organizations, and all that. What would I do if some or all of my cyber-wealth was lost, breached, inaccessible for long periods of time, etc.?
OP, if I were you, I'd start to refine my concern into more specifics as I think you may be running multiple concerns together. There are unlimited number of scenarios that you could address; it's really a matter of which do you think pose the biggest risk to you & are most likely to occur. For example, I don't think of owning stocks & bonds as "really nothing tangible" as long as country is a nation of laws. My ability to demonstrate ownership being another matter. The valuation of those yet another. That said, I do think for other reasons it is good to diversify outside strictly financial assets, depending on one's circumstances. The viability of those will vary based on the scenario under discussion.

I think it is a separate issue to address the point you raised about being "inaccessible" for "long" periods of time. Again personally, i avoid whenever practical having single point of failure possibilities for the really critical stuff. Depending upon how long you want to protect yourself, this isn't unlike problems faced when natural disaster strikes (think hurricanes, tornadoes, floods, et al). For those reasons, I don't want to be in a position where there is only one way for me to get currency, use one debit card, etc

edge
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by edge » Thu Feb 22, 2018 4:27 pm

Seems like a bad idea.

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David Jay
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by David Jay » Thu Feb 22, 2018 4:40 pm

itstoomuch wrote:
Thu Feb 22, 2018 3:47 pm
There are similarities between GLWB Annuities, both Variable and Fixed-Indexed, and RE, either held for Income or diversification.
[for the OP] And how do insurance companies keep track of your annuity information? Oh, yeah - bits and bytes.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

over45
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by over45 » Thu Feb 22, 2018 4:48 pm

location, location, location. if you can find the right properties at the right price - to me it would make sense seeing as I think along the same lines as you do. taxes and other fees figured into the equation. not so sure about the second home though because if inflation hits and rates rise - those are going to be the first to be dumped onto the market -- unless you can rent it out and cover everything and not have to worry.

i feel your concern as i'm in the same boat and trying to figure out what to do and where to put some funds. clocks ticking imho.
Last edited by over45 on Thu Feb 22, 2018 4:57 pm, edited 1 time in total.

itstoomuch
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by itstoomuch » Thu Feb 22, 2018 4:49 pm

^yah, DJ, but they are of different virtual flavors of bits and bytes 8-)
RE, you can see what you own along with your mortgage company partner :wink:
YtasteMV :mrgreen:
:annoyed
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

Jeff Albertson
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by Jeff Albertson » Thu Feb 22, 2018 6:20 pm

from the Economist -
BONDS, shares and Treasury bills are all very well, but in the end they are just pieces of paper. They are not assets you can hang on the wall or display to admiring neighbours. Many rich people like to invest their wealth in more tangible form; property, of course, but also collectibles such as art, fine wine and classic cars.
Is that wise? Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School (LBS) have run the numbers for their annual analysis of the financial markets in the Credit Suisse global investment-returns yearbook.
https://www.economist.com/news/finance- ... llectibles

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Sandtrap
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Re: I'm thinking about buying some real estate to diversify my virtual wealth - agree?

Post by Sandtrap » Thu Feb 22, 2018 6:28 pm

I have just gotten out of "landlording" over 100 rental units so I'm not sure if you want to have a full time plus job being a "landlord".

There are sensible reasons for owning real estate.
1 One's home.
2 Other SFH (single family homes, condo, apt, etc) to rent out or "snowbirding" or VRBO/AIR BnB.
3 Multi Unit Housing.

1 Tax benefits (many)
2 Tax Shelter (many)
3 Diversification of Income Stream
4 Diversification of asset holdings.
5 Summer or winter residence, beach residence, etc.

As always, the purchase criteria are:
1 Can you sell the property in 6 months and not lose money. If not, you're paying too much.
2 Will rent cover the mortage and all expenses and still generate a minimum of 6% Net CAP>?
3 Will the property appreciative value be substantial. If not, perhaps it is in the wrong place.

But to approach R/E simply as a diversification away from "virtual wealth" seems a marginal reason in and of itself.

Some random thoughts.
mahalo,
j :D

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