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Guarding Your Wealth for Senior Citizens
Beware of Generalities When Considering Real Estate
Investments
Real estate should be
a normal part of any portfolio
By Jeffrey D. Voudrie, CFP
June 22, 2006 - Talking heads and pundits
everywhere are quick to make predictions based on broad generalities.
Many investors respond by making changes to their portfolio. Doing so
isn’t always in your best interest. Let me explain why.
Generalities, by their nature, deal with broad
segments. For instance, financial experts have been talking so much
about the popping of the Real Estate Bubble that it may become a
self-fulfilling prophecy. Based on questions from readers, investors are
now concerned about all things real estate.
That’s where the problem lies. It may be true that
there is a Real Estate Bubble of sorts. But that doesn’t necessarily
mean that all real estate investments are destined to drop in value.
There are many ways to invest in real estate besides buying an actual
property. There are publicly traded real estate investment trusts (REITs),
direct participation programs and stocks of homebuilding companies and
materials providers such as Home Depot.
Before you make changes to your real estate
investments, you must first dig deeper to better understand what is
happening and what the specific effects will be. Based on your research,
it may be best to shift funds from one type of real estate investment to
another.
When the media talks about the Real Estate Bubble,
they are really talking about the collapse of prices on single-family
homes. It’s true that the demand for homes has surged the last 5 years
due to abnormally low interest rates.
Just about anyone who was paying rent could own a
home for the same monthly payment. Those with existing homes (and
mortgages at a higher rate of interest) were able to sell and purchase
larger homes while maintaining a similar monthly payment.
The result of this surge in demand was that home
prices went up. As people heard about the remarkable gains real estate
investors were earning, they decided to jump into the game. The numbers
of vacation homes and second homes being purchased soared, further
inflating prices. People who had never invested in real estate were
suddenly trying to flip properties.
Higher interest rates are letting the air out of
that bubble. It is taking longer and longer for a home to sell. Prices
are coming down. Sure, there will be some areas where people paid too
much for a home and will have to wait years before they can sell at a
profit, but I don’t believe there will be a crash like investors
experienced in the Tech Stock Boom. It’s just that our homes won’t
appreciate as fast.
Here’s the point. Not all real estate will decline.
During this rush to purchase homes, rental properties went down in
value. No one wanted to rent, everyone wanted to buy. Landlords had to
offer extravagant incentives. They had to lower rents and include
freebies—much like home sellers are doing now.
So while it was a great time to invest in
single-family homes, it was a terrible time to own rental property.
Likewise, as the single-family market reached its peak it was time to
shift investment dollars into rental properties.
Demand for rentals is increasing. Rents are rising.
Profits are returning. For instance, I have invested my clients in one
company in this niche. It focuses on acquiring, owning and operating
apartment communities mainly in the southeastern United States. Even
after a recent pullback it is still up over 13% year-to-date. And its
dividend yield is currently 4.4%.
If you moved money out of all types of real estate
based on the Real Estate Bubble generalities hyped by the media, you
missed opportunities. I believe real estate should be a normal part of
any portfolio, just like domestic and international stocks and bonds.
Real estate doesn’t move in tandem with stocks, so it helps level out
the ups and downs of the market.
Investing takes work. There aren’t any short cuts.
Taking action based on broad generalities is a loser’s game. By drilling
down through the hype to understand the specifics, you can make
adjustments to your portfolio that will reduce your risk while allowing
you to continue to grow your wealth or achieve a higher level of income.
If you aren’t interested in doing that work, you might consider someone
like me to do it for you.
If you have a specific question or would like more
information give me a call toll-free at 1-877-827-1463 or go to
www.guardingyourwealth.com. You can also reach me by email at
jeff@guardingyourwealth.com.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Please
visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive.
Guarding Your Wealth for Seniors are
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens. Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For booking information, email e-mail
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