Sizing a Private Real Estate Allocation to Fit Your Life

Private real estate earns its place in a portfolio for reasons that have little to do with chasing the highest possible number. It tends to move on its own rhythm, largely detached from the daily gyrations of stocks and bonds and lagging the broader economy on the way up and the way down. Well-chosen properties keep pace with inflation, hold their value, and offer a combination of income, appreciation, and tax advantages that few other asset classes match. Once an investor accepts that private real estate belongs in the mix, though, a harder question follows immediately: how much?

There is no universal answer, and anyone who offers one without asking about your circumstances is guessing. But there are useful reference points, a clear framework for thinking it through, and one variable — illiquidity — that matters more than any other. At Heritage Hill, we approach the sizing question by starting from the investor's life, not from a model.

What Sophisticated Investors Actually Hold

It helps to look at how experienced, well-advised pools of capital allocate. Large university endowments that have compounded wealth successfully over decades have leaned meaningfully on private real estate as part of their alternatives exposure, with allocations that have run into the double digits and, in some periods, considerably higher. Surveys of high-net-worth investors have found average private real estate allocations that are strikingly large — often a third or more of investable assets. And academic work on portfolio optimization has suggested that a "correct" allocation to private real estate would be well above what most investors actually hold, with the gap explained largely by perceived risk and the discomfort of illiquidity. [These reference points should be refreshed with current survey and endowment data before citing specific figures.]

The consistent message across these sources is not a precise percentage. It is directional: disciplined, sophisticated investors tend to hold more private real estate than the typical individual does, and the main thing holding individuals back is not returns but liquidity.

The Variable That Governs Everything: Illiquidity

Private real estate cannot be sold on a whim. Capital committed to a fund or a property may take months or years to unlock. That is precisely why it is unsuitable for money you might need in the near term — an upcoming tuition bill, living expenses, a looming purchase. The right allocation therefore depends less on your appetite for real estate and more on two personal facts: your net worth and your time horizon.

The interaction between the two is intuitive. A large family office can comfortably tie up half its capital in illiquid assets, because even a modest slice of liquid holdings covers any conceivable need. An investor with a smaller balance sheet may feel — reasonably — that they cannot afford to lock up much of anything. The same person might happily hold a large illiquid position inside a long-dated retirement account while wanting none of it in the savings account they may need to reach on short notice. Illiquidity is not inherently good or bad; it simply has to be managed against your genuine need for accessible cash. The first question to answer, before any allocation percentage, is how much liquidity you need to keep in reserve for emergencies and near-term obligations.

Why Illiquidity Can Be a Feature

There is a counterintuitive benefit hidden in all of this. One of the most destructive things investors do is sell in a panic at the bottom of a market decline — abandoning a sound plan at the exact moment they should hold. The pain of a crash is so acute that many flee precisely when they should stay, and the cost is severe.

The evidence on this is stark. Long-run studies have shown that missing just the handful of best-performing days in the market — days that tend to cluster near the depths of downturns — can cut an investor's average annual return from healthy to negligible. Over four decades, that difference can turn a modest starting sum into something many multiples larger, or leave it nearly stagnant, depending entirely on whether the investor stayed put. Because private real estate cannot be dumped at the click of a button, it quietly protects investors from their own worst instincts. The friction that critics call a drawback often functions as a discipline that keeps capital invested through the very periods when staying invested matters most.

A Framework for Sizing the Allocation

Bringing it together, a sensible private real estate allocation grows with two things: the size of your balance sheet and the length of your time horizon. The wealthier you are, the larger the share of illiquid assets you can absorb without straining liquidity. The longer your horizon, the more comfortably you can wait for those assets to work.

As a directional guide, an investor with a shorter horizon and a smaller net worth might reasonably keep private real estate to a low single-digit or high single-digit slice of the portfolio, while an investor with substantial wealth and a horizon measured in decades might comfortably carry two or three times that. The precise figure is a personal decision — it depends on your goals, your obligations, and how much accessible cash lets you sleep at night. What the framework should not do is talk you out of the asset class entirely on liquidity grounds alone.

The Bottom Line

A thoughtful blend of stocks, bonds, and private real estate has historically delivered a higher risk-adjusted return and lower overall volatility than stocks and bonds alone. Private real estate is the piece that adds low-correlation, inflation-resistant, income-and-appreciation exposure — and, as a bonus, a structural nudge toward staying the course. How much to hold is ultimately a judgment about your own circumstances, but the right starting point is to determine your liquidity needs first and size the illiquid allocation around them. Do that, and the question stops being "how much can I risk?" and becomes "how much can I sensibly commit to an asset class built for the long run?"

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Sizing a private real estate allocation begins with your liquidity needs and time horizon, and Heritage Hill structures its investments for the patient, long-horizon capital that this asset class rewards.

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This material is for informational and educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. Private real estate investments involve risk, including the possible loss of principal. Past performance is not indicative of future results.