Wednesday, December 26, 2007

Maybe It's Time To Consider Real Estate Again

"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."- Warren Buffet

Since I'm a bit of a contrarian investor, the possibilities for real estate are of interest to me right now. Articles like Will Prices Hit Bottom in 2008? Yes but... are calling for continued decline through 2008 followed by a recovery. While I do believe real estate will continue to decline near term, I don't know when the bottom will happen. However, I think it is a good time to start investigating possibilities. Here's what I am considering and not considering:

Potential Investment Opportunities

Real estate ETFs. I have been considering Vanguard REIT Index ETF (VNQ) since September, 2007 when I began investigating an ETF portfolio. VNQ is currently at $63.31, down about 9% from September. In addition, it is down 28% from its high of $87.44 earlier this year. One benefit of an ETF is that it is very liquid and I can make a small investment.

Commercial real estate. Some of my dad's most successful investments were commercial real estate. His best was a partnership interest in a property that has returned four times his original cost. In addition, the rents are currently at 25% of his original cost. The second best was a property that he rented to the same business for 18 years and then sold to the business owner at a 100% gain.

While I think commercial properties are a good investment, I think many in our area are still over priced. Also, I would still like to find an opportunity that minimizes the investment and tenant risks.

Not Likely Investment Opportunities

Vacation home. While the thought of owning property in a desirable tourist location is appealing, I still can't justify the cost of having a second home which is used for limited times during the year. It seems that renting is much more cost efficient. In addition, I would feel slightly constrained in vacation locations, since I would want to utilize property that we owned. Also, I am not particularly interested in being a distant landlord for vacationers.

Single family homes. Whether for renting or renovating, I feel that effort wouldn't justify the return for me. In addition, I believe their will still be significant turmoil in this segment as adjustable rate mortgages reset over the next couple years.

If I didn't already own a home, I would consider buying a home at this time, especially if I planned to live at least five years. However, I already own a house and am happy with where we live.

Land. Owning land tends to tie up money, producing no revenue while still requiring expenses (e.g. taxes and maintenance). In my situation of being retired, I can't afford to have money tied up in an investment that doesn't have the potential to produce recurring income.

Overall, I consider myself a novice real estate investor. Other than the two homes, in which we lived, and a partnership with my dad on one property, I have no real estate investment experience. Thus, although I am investigating the possibilities with real estate, it is highly likely I won't buy any properties.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Photo Credit:, Andrea Church

This is not financial or real estate advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC

1 comment:

D4L said...

I purchased VNQ for the dividends. During 2007, I have been mildly disappointed with its dividend performance (gently trended down). I plan on giving it into 2008 and then reevaluate its performance.

Best Wishes,