National Capital

Is Real Estate Investing Our Best Shot at Wealth?

My financial friends,

You all have great points to debate. As a financial advisor specializing in evaluations and feasibility studies for real estate, we advise a well diversified portfolio, but a good portion can be in real estate (20-25 percent). Although real estate is technically an alternative investment in many books, I think it is fair to recognize real estate as a core asset class. Remove the home idea, it is not an investment. But let’s break down the economy and the total capital invested into real estate, it is a great deal of our GDP and the global economy, and a large portion of balance sheets. The trick is, to rely on professionals. I am not trying to tell others how to hedge their bets with commodities, evaluating companies, or timing the market, but when it comes to real estate: we know the details, every detail.

HISTORICAL DATA -- if used when making the real estate investment, historical data can be very helpful and insightful. In every market, there are ways to make money; in every market, you can exploit market inefficiencies. Through market intelligence (just like you would have in your due diligence) we make decisions. We are planning for mid-late 2009, it will present a wonderful time to get into the market at 10-30 cents on "today's dollar" in certain market locations.

GREED -- One of the biggest reasons we are all in this mess is due to the greed on Wall Street, many lobbyist and payoffs are/were going on to slick the wheels. The consumers were exploited, institutions did better. How did this happen? From builders creating a hyper-supply through building blindly – not knowing where the buyers would come from -- to severe market manipulation and misinformation: these corporations were not reporting correctly! These same national builders creating their own development, went vertical on construction, created their own mortgages, and then securitizing the instruments; they made significant profit all along the food chain. They knew exactly what they were doing, and took advantage of main street as long as they could, all while Wall Street profited. You will see more and more indictments coming down the pike within the next 3 years, just in time for these executives to be nailed before the 5 year statute of limitation.

IF’S -- The weakness of real estate is liquidity, so it is hard to track returns. However, “if” you can buy right (just like any investment), and “if” you can diversify product and geographical location, you are on the right track. By following leading and trailing markets you can chart the course. Then, if you can align yourselves with groups that have purchasing power and can buy with steep discounts, you are doing even better. “If” we can remember that commodities are the best bet for hedging against inflation, let’s not forget that real estate matches that inflation hedge -- in addition to the benefits from appreciation, tax benefits, capital expenditure/depreciati... coupled with income and capital gains potential, there are more ways to make money in real estate than to passively watch a stock. Real estate is a core asset. The Key if: find the right manager or operator, don’t waste your time with amateurs.

VALUE INVESTING -- There were many economists that predicted this mess in 2005, we sold assets at its peak and seemed to do fine. We are back at the value investing cycle as the Oracle of Omaha has demonstrated, specializing our core-competency in real estate. Again, our play like it was during 1991, 2000, is again to buy distressed and hold.

FOOD FOR THOUGHT: All the economists have said it’s all about dirt, not derivatives. Like anything else, get out when the market is hot. Pig’s get fat, hogs get slaughtered. Let’s all be a little more open, less critical, more understanding. When you associate with professionals in any market sector you can do well. Just find the best players for your team. Don’t throw the baby out with the bathwater. Know your variables, know the details. It is all about cash flow.

Like the author said, investors can still make great money in the real estate market “if” they focus on the right things. When you cut corners in anything, it will be a painful and costly experience.