Is It Time to Be a Real Estate Maven?http://www.fool.com/investing/dividends-income/2008/11/26/is-it-time-to-be-a-real-estate-maven.aspx Selena Maranjian
November 26, 2008
People look at the carnage in the stock market this year, and many of them think to themselves, "Forget stocks! I'm going to invest in real estate." They do this for several reasons, which I'd like to rebut:
Of course, the old reminder to consider "location, location, location" is apt. Each market is different. If you understand that the housing market is cyclical and regional, you can make good money in real estate -- in some places and over some periods. But it's hard to know exactly where and when.
More food for thought
Remember the standard good advice to diversify your assets? You know it'd be risky to park half or more of your portfolio in a single stock. Well, many people have that much or more of their net worth parked in their home, or in some property they bought for "investment" purposes. That's risky, too. Some markets have fallen quite sharply, like California. Others have stagnated or fallen for a long time, like Detroit.
Also, keep in mind that unlike stocks, what you pay up front for a home is just the beginning. You'll pay a lot in mortgage interest, property taxes, homeowner's insurance, and the costs of upkeep and major repairs if you live in your home for a while. In the long run, those costs can dwarf your original purchase price.
What to do
One alternative to land or buildings is to use real estate investment trusts (REITs). They're securities representing stakes in various real estate portfolios. You can find REITs that specialize in commercial, industrial, medical, or hotel and hospitality properties.
REITs typically pay generous dividends, which makes them attractive to many investors. Here are some REITS, for example, with their current dividend yields: