Post crisis real estate investing

by Dan Krell ©2012

horseWatching an interview of Chef Bobby Flay this week, talk about the possibly of buying a horse at the Fasig Tipton Yearling Auction in Saratoga Springs, NY, I heard him say, “I’m actually looking at this like buying a building, literally…it’s like buying a really expensive piece of real estate…”

Well, why not buy that expensive piece of real estate? Some experts are still saying that real estate is still one of the core investment assets. For example: Brad Case, of the National Association of Real Estate Investment Trusts®, in his June 2011 article in Financial Planning (“School is in”; 41, 3), discussed the importance of real estate as an investment class. Case stated that, real estate is a “basic” investment class. He continued by quoting some of the most influential financial experts on real estate investing: “…Burton Malkiel, the Princeton professor and former member of the Council of Economic Advisors who wrote the famous investing manual, A Random Walk Down Wall Street, said, ‘There are only four types of investment categories that you need to consider: cash, bonds, common stocks and real estate.’ Mark Anson, who led the largest pension funds in both the U.S. (CalPERS) and the U.K. (British Telecom), completely agreed: ‘Equity, fixed income, cash and real estate are the basic asset classes that must be held within a diversified portfolio’…”

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Ann Marsh, in her may 2012 article “Real estate’s rehabilitation” (Financial Planning, 42, 56), also agreed. She stated that not only are financial planners urging their clients to buy into real estate investment trusts (REITs), some planners are urging the “outright” purchase of individual buildings.

Of course, when thinking of real estate investing, most people think about residential real estate – in particular flipping homes or owning rental properties. Investors looking for rental properties tend to look at long term value (appreciation) as well as having a positive cash flow; while home flippers are interested in renovating a home and selling for a quick profit.

commercial real estateResidential real estate is not the only opportunity for investors. Some real estate investors look for deals in commercial buildings; the market downturn has added to the possibilities too. Investors in commercial properties tend to look for development opportunities as well as long term retention.

Another way to invest in real estate is through a real estate investment trust (REIT). The REIT investment structure has been around for many years, and may provide the real estate investor access to investments they might not otherwise purchase on their own. There are many types of REITS, some invest broadly in many types of real estate; while some are focused on specific types of properties (e.g., shopping centers, storage centers, apartments, etc).

Clearly, there are many risks involved in real estate investing. Of course there are financial risks, but there also a time investment required. Additionally: cash flow can become an issue when tenants stop paying rent, or unexpected maintenance issues need attention; rehab or development costs can skyrocket when unexpected obstacles are encountered; and when selling, you may not realize the sale price you initially estimated due to market fluctuations, bad appraisals, etc.

Although some real estate investors are successful; many real estate investors lose money. Before you decide to invest in real estate, you should consult investment, financial, real estate, and other professionals to assist you with the research and due diligence.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of August 6 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.