What’s Happening With Real-Estate Right Now

There’s a story being reported left and right. The story is about commercial real-estate. With the global lockdown happening right now, commercial properties are going to go through a massive setback. Retailers have united to the call of not paying any rents until the businesses open.

Most small businesses have cash that would last no longer than a month. Many of these will have to permanently close down. As a cascading affect, commercial real estate as a whole would be losing value. REITs are already trading much lower.

There’s another story being reported heavily. It’s about the travel industry. No one expected or prepared for travellers to disappear. Many airlines would go bankrupt without financial support from the governments. I can’t imagine how bad hotels are right now. Especially small and medium hotels who are running the show on rented properties. Many of these will permanently close down.

There’s another story but that’s very under-reported so far. It’s about the residential real-estate which I originally thought would stay unaffected but I’m curious whether that’s the case. It’s about the Airbnb’rs. The super hosts. Semi-pros who are in a pretty bad situation. Their odds of coming out of this just as good as someone trading crypto on a 10x leverage. Slim. Let me explain myself.

Airbnb hosts begin by renting a property. They are able to then sublet this property at a 3x higher price. After setting aside profits, they are in a pretty good position to rent or mortgage the second property. Eventually many super hosts are hosting as many as 10 properties. And they have absolutely no one staying at any of their properties. Their cash is evaporating fast and there is a real trouble brewing.

The question that I’m trying to find answer for though is whether this could affect residential prices just as I expect the commercial real estate to suffer.

Asset Allocation of Your Investments

As you start to build some wealth, you’re presented with a new set of challenges. You’d ideally want your money to work for you and make money in return and you’d at the very least like to preserve your wealth with respect to purchasing power i-e fighting inflation.

Asset allocation is a strange topic for me because I’ve received all sorts of advice here. The advice, however, varied the most depending on the wealth of the person giving the advice.

As a general rule, the richer you are, the more conservative you’re with your allocation. Really wealthy people put a large amount of money at work, for low-risk returns, generating a decent chunk of cash. While up and coming investors and younger folks are aggressive and put a large portion of their wealth to generate high-risk above average returns.

I’m not going to give specific wealth advice, but personally I design my allocation such that 10% of my investments can make up to a maximum of 90% of my returns and 90% of my investments can potentially make 10% of the returns for me.

It is also why I really like crypto class of assets and I think every person should experiment with 5-10% of their wealth for trying to achieve really parabolic results. While the rest of the wealth should be allocated in safer assets such as equities, bonds, real-estate etc.

For equities, I like to build lazy portfolios with 70% sub-allocation for US indexes, 20% for other developed-world indexes, and 10% for the emerging economies.

And like everyone else, a major chunk has to get into real-estate which is not only safe in the most cases, but helps with both capital gains and recurring income.