Including Real Estate in Your Investment Strategy
By Jill Kane
Designing an investment portfolio that fits your needs is always a complex process.
Unfortunately, many people neglect real estate as one of the most attractive ways to
diversify their investments because they aren t aware of the variety of ways real estate
can be included. In the past twenty years, the real estate market has exploded and the
opportunities to invest in it either directly or indirectly have grown to keep pace.
Individual investors should always consult a professional if they want to design a
portfolio that properly balances the opportunity for greater gains against possible risks.
This will vary depending on where you are in life, what your retirement plans are and a
host of other factors, but a few simple things should be kept in mind.
* Diversifying is always essential to designing a good investment portfolio.
That is, you should never have more than a third of your investments tied
up in any one form.
* Learn as much as you can about the individual categories and the risks
involved with each. Generally speaking, stocks and bonds are somewhat
safer, but show a slower return, although it does tend to be steady.
Commodities (precious metals, oil, natural gas, etc.) are riskier but with a
great return.
* Keep in mind that mutual funds can provide you with the power of group
purchasing when investing while spreading the risk over a larger group of
investors.
* Don t forget real estate as a solid investment choice.
Real estate is often neglected when designing a portfolio unless the individual is
purchasing property himself. Actually, the best way to invest in real estate is often
through what is called a Real Estate Investment Trust, or REIT. This is an entity set up
specifically to invest in large properties such as hotels, high rise properties and malls.
The three categories of REIT s are:
1. Equity REITs - These will actually own property which makes money from the
rent being paid by tenants. The investors get a portion of the rents received.
2. Mortgage REITs - These are organizations that write mortgages to real estate
developers or invest in mortgage-secured financials.
3. Hybrids - Simply an organization that invests in both mortgage and equity REITs.
You can also invest directly in real property without becoming a part of an REIT. After
all, the need for real estate will never go away, and land generally increases in value over
the long term, so it s a relatively good investment strategy, particularly if you are
planning a long-term portfolio. It s a low-risk strategy that historically has shown to be
quite profitable in most cases (nothing is risk free).
When adding real estate to your investment portfolio, be sure to do the research and
legwork to educate yourself. Study the market in your area, learn all you can about any
property you are considering and decide whether becoming a landlord or flipping
properties will be more lucrative in the long term. It s important to know if you have
enough available cash flow to be able to keep your property until it s value has reached
the point where selling makes the most sense.
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To read more about real estate investment information, visit Jill Kane s sites at http://www.1st-real-estate.com
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