An unusually long and harsh winter is delaying the start of the spring real estate and land market, but for the investment-minded, continued low interest rates and high demand for rentals appear to outline an opportunity especially when buying investment land.
Institutional investors and their buckets of cash have dominated many markets for the past several years, according to real estate data cruncher CoreLogic. But at the end of 2014, cash sales declined to a national average of 36.1 percent, down from 38.8 percent in November 2013. CoreLogic also reported that the foreclosure inventory declined 34 percent at the end of 2014. That means individual investors are starting to have a shot at lower-priced properties ripe for fixing up and renting and lower priced land investments for sale, real estate professionals say. If you are thinking of tiptoeing into investment real estate, you have two basic approaches.
Buying shares in a real estate investment trust. You can invest in a REIT, but doing so involves buying shares of a portfolio of properties. It’s really more like buying a stock or buying into a fund and a completely different animal from owning real estate directly.
There are three layers of value – the real estate itself, the management and cash flow that supports the trust, and the fund based on the trust. It’s a very different vehicle than buying real estate, but most of us can’t just go out and buy 1 percent of a skyscraper.
Adding a REIT to your portfolio can complement stock and bond funds, but you must be sure you understand how the real estate fund is designed and how its managers will likely extract value from the holdings. You can buy shares of REITs and real estate-based funds, but the performance of the funds is based on both cash flow and gains from occasionally selling properties – a very different scenario from the typical performance drivers of stock and bond funds.
Direct ownership. In a direct ownership you own your investment property. When you own real property as a direct ownership you can fall in line of thinking that your investment is easy money, that there’s not a lot of work, that tenants will pay on time and that pipes never leak. As we all know from real world experience, this is a dangerous way of thinking. Land is a bit of a different story and can end up being a wiser investment as it requires less general care, maintenance and overhead. Your land investment will never call at three in the morning to report an overflowing toilet and appreciates in value much faster than a real property investment.
To learn more about investing in land real estate contact an expert member of the Gratia Group at (239) 333-2221.