Tag Archives: housing

Diversification for Real Estate Investors

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This is an edited version of my response to a question on the Bigger Pockets forum (a real estate investor site):

Diversification is a valuable strategy for investors. Investors focused on real estate can add safety to their portfolio by diversifying with real estate and financial assets.

Financial Assets

Diversify with stocks and bonds (though at these interest rates I prefer money market funds and a small amount of short term bond funds). Within stocks (for USA investors) some global stocks can be a sensible strategy (though there are reasonable arguments to be made for USA S&P 500 having lots of international exposure). For those outside the USA I definitely believe global diversification is important.

Other thoughts on diversification: Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation

Real Estate
It is also sensible to diversify within real estate. I am looking at buying real estate in a 2nd location, in a different sate (I am uncomfortable with how much of my assets are in real estate in 1 geographic location).

There are many good reasons to buy real estate locally – expertise in the market, ease of management…  But from a perspective of diversification buying in a 2nd location can make sense (and then a 3rd…). You can also look at things like vacation rental (v. SFH rental, apartments, cheap v. expensive rentals…), business real estate (retail, office space…).  You can use Real Estate Investment Trusts REITs (useful, for example, for those not interested or able to do business real estate directly).  There are many risks to being geographically and type concentrated.

An easy way to see the risk to consider an investor with all vacation/airbnb rentals in 1 city. That city then passed laws that restrict or kill that business?  The legal risk – local and state and federal tax law changes are real (and not just airbnb restriction law changes, that airbnb example is easy one for most people to see).  Also the economy of that location or state could be harmed and you would be harmed (even if you did really well in a downward spiraling market the market forces may overwhelm you advantages).



Diversification is a wise move to increase safety.  But how you do that is debatable and not as easy as just wishing to be wisely diversified.  Most people not on these boards would benefit from diversification by adding real estate to their investments (while many on these board probably could benefit by diversification with non-real-estate investments).

Warren Buffett on Diversification


Other comments on the board mentioned Warren Buffett’s comments on the benefits of concentration (the opposite of diversification). Warren Buffett’s argument against too much diversification basically boils down to him wanting to spend a lot of time becoming an expert on 10 companies he owns vs. buying some of 200 companies (as he doesn’t think anyone can really be an expert on 200 in addition to the problem of finding nearly that many great bargains).  His statements on diversification in this manner was essentially a response to questions about comparing him to stock pickers from managed mutual funds (where they owned 100 or 200 or more stocks and he often owned huge amounts of under 10 – he also bought out companies completely so really he has over 10 but…).

Warren Buffett also believes just buying very diversified stock market funds (unmanaged with low costs) is a very good strategy for nearly everyone (excepting himself and a few others).  Basically Warren Buffett says diversification is a good way to get average returns (if you can smartly beat the market over the long term diversification will dilute your ability to beat the market moving you to average).  But for the vast majority of investors over the long term the reduced risk that comes with diversification is wise and pays off for them.

As with most things, diversification has advantages and disadvantages but most often a well diversified investment portfolio provides the best protection against the many risks individual investments face.

Related: Using Annuities as Part of a Retirement Plan – Should I Sell or Keep My House When I Become a Nomad? – Looking at Real Estate in This Challenging Investing Climate (2015) – Use FI/RE to Create a Better Life Not To Build a Nest Egg as Quickly as Possible

A Tiny Housing Take on Multi-Generational Housing

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Housing is a critical aspect of any financial plan. Many alternatives have become more popular in the last 10 years: nomad (digital nomads etc.), tiny houses, mobile living (RVs, vans…), etc.. I think such housing alternatives are important and should be given more consideration by more people.

As these options become more popular they begin to be used in specialized ways. As I have written previously I think multi-generation housing is an interesting concept that deserves more attention. It is not a new idea but in many countries (such as the USA) it has gone out of favor but it may well come back into favor, I believe.

One recent trend combines multi-generational living and tiny housing into tiny houses in a backyard for grandparents.

The 12×24-foot prefabricated house starts at $85,000 — less than the cost of traditional long-term elder care — and includes innovative safety features like webcams and cushioned floors that allow the family member privacy and the caregiver freedom.

‘Granny Pods’ Help Keep Portland Affordable

Seattle, Austin, Washington, D.C., and San Francisco also recently made it easier to add a second unit or granny flat.

These Accessory Dwelling Units (ADU) require zoning flexibility in most places (in the USA at least, I am not sure about zoning issues globally). Hopefully more localities will create options to allow more flexibility.

ADU for Medical Caregiving

MEDCottages will be fully assembled at a manufacturing facility and trucked to a site to be plugged in, like a recreational vehicle, to the electrical and mechanical systems of an existing home by a local contractor.

Related: Tiny Homes are a Great Alternative – Housing Savings by Living as a Nomad – Financial Independence Retire Early (FIRE) and Location Independent Working

Tiny Homes – A Great Alternative

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Homes don’t have to be huge as they are now. The ever expanding USA single family home: average square footage of single-family homes in the USA: 1950 – 983; 1970 – 1,500; 1990 – 2,080; 2004 – 2,349.

Tiny houses are looking at going back even earlier than 1950, and that is a good idea. I would also like to see experiments with small houses along the lines of 1950s (or even a bit smaller). By reducing the high cost of housing we can drastically change personal finances for the non-rich in the USA (and elsewhere).

The innovative thinking by Cass Community Social Services discussed in the video in is the type of thinking we need to see more of. The Detroit non-profit is building tiny houses and making them available for rent to low income residents. The effort includes monthly personal finance and home care classes to make those tenants ready to transition to home owners (which they can do, buying the houses they start out renting).

The plan is to use the rent-to-own model. Rent is capped at 1/3 of income (and should be something around $250/month I think). The houses cost about $40,000 build and funding from the Ford Foundation has jump started this effort. The initial effort plans to build 25 tiny houses.

I think housing innovation is one of the areas with great potential to make people’s lives better by reducing the burden on people’s finances. Tiny houses are one method. Multi-generational housing communities is another. Dorm-like housing is another (I would have found this appealing after college). These apartment buildings seek to increase the social space in the building and encourage social interaction and also often have smaller units (bringing down the cost while providing benefits people desire – social options).

Related: Making the Most of 450 Square Feet – Amazingly Flexible 344 Square Foot Room Can Transform Into 24 Different Rooms

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Multi-generational Housing Communities

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The digital nomad lifestyle is made possible by the modern world. In some ways it harkens back to nomads but not really very much. Another idea that is gaining favor (not as popular as the digital nomad trend) is multi-generational housing.

Our ancestors all lived in close knit multi-generational communities. Normally with 3 or 4 generations of the same family under the same roof (or within shouting distance in a hut nearby).

I can understand many reasons why many of us moved to our more independent way of living (especially in the USA) as we got rich enough to afford to do so.

There are really interesting (small) efforts to do this in non-related multi-generation households. I think there are very good reasons for it. And for people like me that would rather not live in the same house with these others it can even work in a small group of homes. Often with shared kitchen… Sometimes older people can share some financial burden (young family gets cheaper housing). And younger people can help with yard work, repairs… Cooking can be shared. Childcare from elderly can help free up the kids parents and can give some personal contact to elderly (that can otherwise be socially isolated). Kids can get more contact with people in the small community and may has less time just sitting in front of Netflix (especially small kids).

I learned about the resurgent movement for co-housing while I was living as a nomad. To me it really seems like another form of trying new ways of living that are not the common living arrangement for most people today. It seems to me it has the potential to be as life changing and enriching as many find the nomad lifestyle to be.

Of course there are all the issues you have with people being together. But there are some pretty good things about it too.

Related: Union Corners Cohousing in Madison, Wisconsin – Should I Sell or Keep My House When I Become a Nomad? – Design coalition multifamily housing – Housing Savings by Living as a Nomad