How Much of Your Net Worth Should Be in Real Estate?
Ever since the first settlers came to America, real estate has been a worthy investment. Even with the volatile economy we currently are living in, real estate is still a pretty safe way to invest and grow your net worth. The home prices are high currently, but those that have recently invested in a new home will still see a good return. There are some homeowners who have too little or too much of their net worth invested in real estate which can result in problems. So what is the magic number when it comes to investing your net worth into real estate? 
According to professionals in the industry, you should use anywhere from 25% to 40% of your net worth for real estate. This will include your home that you live in and other real estate investments. By doing this, it allows you to capitalize on the advantages of real estate ownership while giving you plenty of flexibility to pursue other avenues of investment and wealth development. This is a broad percentage range but your age, risk tolerance and other various factors will play a part in determining how much you should go with.
Investors will tell you that adding real estate to a portfolio is very beneficial. You can enjoy predictable cash flow, excellent returns, tax advantages and diversification. Remember there are several pros to real estate investments. Real estate can appreciate over time, bring you tax incentives, provide a large chunk of income, allows you to use leverage and build equity, and allows the investor to have direct control over the investment.
Investors will need to know first hand how to calculate how much real estate should go into their net worth. This can be calculated with a net worth formula which is net worth = total assets – total liabilities. There are net worth calculators online that will provide you with the figure. An investor should always know the information needed to calculate.
To make it easier, an investor will need to divide their assets into four categories. These include tangible assets (furniture, cars, collectables, physical properties, etc.), equity assets (ownership in stocks, investments in partnerships and businesses, retirement accounts, life insurance cash value, etc.), cash and cash equivalents (cash, money market accounts, checking accounts, savings, etc.) and fixed income (bonds, etc.).
Once you have this total, then you will need to add up your liabilities. This can be divided into two categories which are secured debts (car loans, home equity loans, mortgages, etc.) and unsecured debts (credit card debt, student loans, personal loans, taxes, medical bills, etc.). Once you have your total for your assets and liabilities you will apply the net worth formula.
Remember, it is very important to understand how your net worth is calculated and what information you will need to do this. If you are in the market for a home or a real estate investment, talk to a local realtor who can help you with a real estate transaction.
