Balancing Market and Real estate Inv

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PilotNJ
Posts: 2
Joined: Sun Apr 14, 2019 9:40 am

Balancing Market and Real estate Inv

Post by PilotNJ » Sun Apr 14, 2019 10:40 am

What does everyone think is the best approach to balancing the market vs personal real-estate investing need for liquid funds?

I’ve been investing in real-estate deals (flips, foreclosures, short sales, etc.) for about 20 years - mostly very successfully. Tried my hand in day trading and timing the market in the past (after all, if I’m good at real estate, how different can this be?) Lost a lot of money and learned my lessons every single time (took way too many times before I learned - guess a slow learner...) now fully subscribe to the bogleheads philosophy.

Here is the question: I generally make a much better return on RE investments than the standard 3 fund portfolio (it is more of an active job, so a lot of that is elbow grease). What is the best way to invest in the mean time? Real estate deal timing is very uncertain. I might find a deal tomorrow and need money immediately (most have to be done 30 days / all cash), or it could take years, or I might never find another one ever again. No way to predict.

I thought of taking a loan out against my investments if deals come up - but that would basically be margin trading? Something I definitely want to avoid.

A little about me (although I’m more looking for general thoughts on this):
- Wife and I both work and max out our 401k’s. That should (hopefully) be enough to retire. So extra money is more about luxuries for the family now.
- Both in our early 40’s
- Family income around 600k, split about evenly. Her job very stable (medicine), mine a lot less so (finance).
- Real estate is a side gig that I do. On a good year - can double my income, on a bad year - don’t have a single deal.
- Kids coming up on college in a few years, but we have a fully paid off rental property that could sell to fund school if we don’t have liquid funds at the time. So not a concern. At least I dont think so...

dbr
Posts: 28553
Joined: Sun Mar 04, 2007 9:50 am

Re: Balancing Market and Real estate Inv

Post by dbr » Sun Apr 14, 2019 11:56 am

To actually calculate trade-offs in a case like this you need to have numbers for probability of occurrence of the real estate opportunities and the return that can be earned there. Numbers for the probability of occurrence of various returns in a mixture of stocks and fixed income exist. If you did have those numbers one could probably use a Monte Carlo simulation to explore the optimum strategy. I would guess this sort of thing is what people who get degrees in finance study, so maybe if someone in that field is here they can comment.

Otherwise you might try a middle ground of investing 50/50, but one would have to think a bit about whether either 100/0 or 0/100 should be an obvious optimum.

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