When constructing an IPS, I recall reading that we should leave a Client’s home off the IPS? (Don’t quote me if I’m wrong) Yet, I’m reading SS13 ALternative Inv, they say a client’s home shoudl be factored into the real estate allocation. Does this mean a 2nd or vacation home etc?
If it is their primary residence in which they live in, I would not include it as part of the real estate allocation. I would however, note what the ownership status is of the home (e.g. fully paid off and mortgage free), and mention that in the “unique circumstances” area.
A home with equity can be viewed as a liquidity stash in tough times, you can take out a home equity line of credit (HELOC) if necessary. This is mentioned in the Inger case at some point… I think when Hans decides to drive his car into a 711 or some shit like that…
If it states to use the current real estate towards a count for the Real Estate Allocation - then we need to use it.
Look at Example 9, Vol 3, Ian Thomas Case, Pg 260 (under Asset Allocation)
His 240K in his home, which is included in his 2.75 M$ Net worth -> is removed to consider his taxable investment. (only 2.51 M is considered).
But for Real Estate Allocation - the 240 K is removed…
240k removed for Real Estate allocation, or included?
removed while making the new allocation is what I meant. (so it is considered a part of the allocation). Newer allocation would have been higher otherwise.
In that problem on p.260…do you know how they come up with the 8.5% return objective?
I get ~6%
150k/(2750-240) = 6%
Fits with reality, as you would not include someone’s home when determining their asset allocation as a practitioner.
as regards the 8.5% requirement - read the footnote. They state that all cash flows required to arrive at the 8.5% requirement have NOT BEEN PROVIDED.
“Yet, I’m reading SS13 ALternative Inv, they say a client’s home shoudl be factored into the real estate allocation. Does this mean a 2nd or vacation home etc?”
Which page no?
Pls prefer to write page nos for refernce, it saves time…thnx!