#242 Building a Balanced Portfolio: How Much of Your Net Worth Should Be in Real Estate?

Hey, everyone, Hope you're having another amazing week. This is Peter Kim. This is the Passive Income MD Podcast. I'm always here to talk about achieving financial freedom through smarter investing, making great decisions. And today we're going to tackle a question that I hear all the time. How much of your net worth should be in real estate? Do you have a great answer for this? Maybe you're just curious, but we're going to talk about that today, so stay tuned. Welcome to the Passive Income MD Podcast, where we talk about creating your ideal life through multiple streams of income. If you enjoy hearing about this stuff.

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Okay, everyone, hope you're doing great. Now, if you've been part of this community at all or listen to this podcast, you know that I believe that real estate is a powerful tool for building wealth. But like any other investment, balance is the key. In addition to balance, maybe the other word that you could use is diversification. Creating that diversified balanced portfolio, which includes real estate, that I believe without overexposing yourself to risk, is the goal. Let's talk about that today. Now, everyone just wants me to spit out a number, but before we do that, I think it's important to lay out the groundwork to understand your financial foundation. That's where your journey to building that ideal portfolio absolutely begins. Number one, you have to define your financial goals. You have to know where the finish line is. Maybe you can start by asking yourself, why are you even interested in investing in real estate? Is it because other people are doing it? Is it the best way to create passive income in your mind, to accumulate wealth, expand your net worth, diversify your portfolio, whatever it is for you, it's important for you to know your purpose because that will ultimately guide the decisions that help shape your allocation. For me, I decided that I wanted cash flow. I wanted some sort of investment that produced cash flow that would go into my pocket or into my bank account every month, and I could utilize it towards living the life that I want. I wanted that number to be so significant that I could decide what I want to do with my time, what do I do with my money, whether I work or not, whether I travel, take time off. And I felt that was only possible if cash came into my pocket every month. Now, if it was just about creating the biggest pile of money, and that's important to you, that accumulation of wealth, then you might focus on some investment strategies that create that appreciation potential. So you have to define your goal. What's Important to you at what point in your life? I mean, many people that are listening to this might be early on in their career, you might be mid career, and you're trying to figure out what's happening next. Or maybe it's possible that you're near the end of your career, but you're thinking about, how do I transition to a life beyond medicine next? If you're going to try to decide how much of your net worth is in real estate, you got to know what your net worth is. I've had a few conversations, even this past week, where I asked people, do you know exactly where you're at financially in terms of your net worth? And all three people said, I have a general idea, I kind of know. And so I gave him the stop sign and said, before we go further, I just need you to go home, list your assets, all the things you own, your cash, investments, real estate, whatever it is, and subtract your liabilities, which is probably your debt, your mortgage, student loans, whatever it might be, and just put that all in one column. And that's something that you should be tracking every single quarter, every three months. And then once you know that net worth, you understand that then you can figure out how to allocate your funds to achieve whatever goals that you might have. You might have more than you think you do. You might be further along in your journey than you even expected. And so your strategy or plan will depend on where you are today. So let's talk about real estate as an asset class real quick and talk about how it might be a powerful part of your portfolio or how it might complement other investments that you might have. As we mentioned, I think it's really important to have this great balance, this diversification. I think even a time like today or the last couple years has shown me that there are times in history when real estate and stocks and commodities like gold or assets like that all move in phase together, where they go all up together, all down together. But the truth is, a lot of times they move in at different speeds, just like a cycle for each is different. Sometimes they match up and sometimes they don't. And so if you want to create stability, that security of always having cash, always building your net worth, not freaking out when certain market goes up or down, that diversification, building up all those different asset classes is important for you to think about. Right now, as I'm speaking, crypto is going crazy. I mean, if you've got Bitcoin or some other crypto assets in your wallet right now, you're probably feeling pretty good, but that will go up and down as well. And the hope is that you have some stability, some cash flow, some inflation protection that real estate offers that might be really beneficial for a lot of you. If there's anything I've learned over the last couple years, with interest rates taking a huge jump and then now slowly starting to come down, is that even within real estate it's important to not put all your eggs in one basket. There are different ways to invest in real estate. Apartments, office space, debt REITs, single family homes, short term rentals. When I look at my portfolio, which has all of those things, some are doing better than others and some have done better in the past than others. So it's important to learn about all those asset classes. Obviously on our website we have a ton of like that. But if you ever come to one of our conferences, you're going to find people that are talking about every single asset class in one space and hopefully that's a high yield moment for you to learn and learn from others who are doing all these different things. Now it depends on your life stage as well. I think we talked about that. If you're early on, you're a younger physician, you may prioritize things that are going to grow a little faster. You can probably take a little bit more risk or there's more opportunities for you to put in sweat equity or get your hands dirty. Those kind of closer to retirement may just want steady cash flow. They may not want to put in the time, energy and effort. They just want to preserve their wealth and generate cash flow for the next 30, 40 years or however long it might be. Hey everyone have a quick question for you.

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Thanks.

And back to the show.

How much of your net worth should be in real estate? And here's the answer. It's totally up to you. I talked to somebody over coffee today and they said that they prefer being in stocks and they only want to have a small percentage in real estate. And they said it like they were almost guilty for letting me know because they know that I love real estate. But I told them that that's fine. That's perfect for you as long as you're comfortable with your strategy, you know your outcomes, and you feel like whatever strategy you're taking or using is helping you get towards your goals. That's all that matters. It doesn't matter what it is. These are all just tools or resources or vehicles at the end of the day to help you live the life that you want. Now, at the beginning, for me, honestly, real estate was a smaller part of my portfolio. Maybe it was like 5 to 10%. But over time, I started pouring more and more income into it. Of course it started to grow, it started to appreciate, it started to snowball in a lot of ways and compound, and it became a bigger, bigger part of my portfolio. Now, I have to say it's probably closer to 75% of my portfolio personally, but that doesn't mean everyone has to do it. In fact, if you talk to your financial advisor, they'll probably allocate it to a very, very small percentage somewhere between 10 to 20% of your portfolio. I don't think that's always a perfect rule as well. It has to work out for you. Whatever makes sense and whatever helps you get towards your goals. I will say that it doesn't hurt to start conservatively. Probably many of you have started with a stock account, 401k, or your own taxable stock portfolio, and that's fine. And maybe slowly you want to add some real estate to that. Depending on what your goals and objectives are and how much you're willing to put work in, whether you want to do it a little bit more actively or you want to do it more passively through any syndications, I will say the time that we're at right now in the real estate cycle, especially when it comes to commercial apartment buildings and things like that, values have come down significantly over the last few years. And that's a result of interest rates having skyrocketed and maintained at a high rate. And they kind of flushed out a lot of operators and sponsors in the market and in the business and a Lot of institutional money. The big players who have money have stayed away because they don't like the volatility and they've been waiting for moments to come back in when it's safe, because when the water is safe to come back into. And I will say, once they've seen interest rates come down, we've seen a lot of these institutional players start to pour money back into the market. So it feels like the winds are now starting to shift where for real estate investors, it's now at your back and nobody knows exactly and it's impossible to time, but it feels like things are moving in the right direction. So I will say from a risk profile, this might be a great time to consider getting into real estate if you're not already in. But just like anything else, when you invest in a new asset class like a, you invest in commercial real estate or multifamily apartment building, whether you do it yourself or invest in a syndication, I say start small, start conservatively. Because the truth is you probably don't know quite all the ins and outs of what you're investing in. If you've taken a course like Passive Real Estate Academy and been part of our community, you know, you probably have knowledge, more than 90%, 95% of investors out there today. But the best way to ultimately learn is to obviously get educated. But once you put your money, once you make that first investment, you're going to learn a significant amount, more than you ever expected. Just because you have money at stake, you have skin in the game at this point. Then as you feel more comfortable and you can make bigger decisions, put more money into play. That's when you start figuring out how to allocate more and more of your net worth into an asset class of your choosing, whatever that might be. So in closing, obviously I believe that real estate is a powerful tool for building wealth, creating passive income. But again, it's just one piece of the puzzle. There are so many other ways to have your money work for you. However, I believe it is one of the most powerful, if not the best way for physicians and high net worth individuals to take advantage of some tax benefits out there to create that passive income that is aligned with your financial goals, your risk tolerance and your stage in life. I believe that you should start small, but get diversified. Try different things regularly. Revisit your strategy course correct, start to make sure you're on track, Are you moving again in the right direction or it's going sideways or something that you don't enjoy. Then just switch, try something different. This is not a get rich quick scheme. It's not something where you're going to get rich overnight, but you're going to build that lasting wealth over time. And it's definitely one of those things where you always feel like you should have gotten in sooner. When you talk to investors, they always wish that they had gotten in to the game sooner. But why not start today? Hopefully that gave you some things to think about. Thanks for being part of this community. Thanks. Thanks for always tuning in every week and sharing it with your friends colleagues. I appreciate that so much. It means a lot to me. Hope you have an amazing week and let's talk again soon. Thanks everyone.

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