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Pros and Cons of Investing Directly in Real Estate

By    |   Tuesday, 23 April 2013 07:41 AM

Many investors are interested in real estate to diversify their portfolio from stocks and bonds.

Investing directly in residential and commercial properties can help provide that diversification, while offering higher yields than bonds and a hedge against inflation, Rich Fichtel, a senior financial adviser at Altfest Personal Wealth Management, tells The Wall Street Journal.

Real estate also carries much less price risk, he says, though that seems a bit dubious given last decade’s real estate collapse.

Forbes Columnist:
‘Who the Hell Cleared This?’

Why not just use real estate investment trusts (REITs) to invest in real estate?

Fichtel explains the high valuations now prevailing among REITs and their high correlation to stocks make them less attractive.

But investing directly in real estate involves a lot of moving parts. Frank Armstrong, president of Miami financial advisory firm Investor Solutions, tells The Journal he would never invest directly in real estate. It’s “roulette for the rich,” he says.

“I don't think I have the expertise, and very few people do. It's not diversifiable, marked to market, liquid or transparent in many cases."

Investing directly carries heavy risk through leverage and high transaction and management costs, Armstrong says.

For investors seeking safety, REITs would seem to be the better option. They don’t sport any of the disadvantages cited by Armstrong. While REITs aren’t cheap now, some sectors are more reasonably priced than others.

And you can always wait for a correction in the market before you buy. There’s no rule that you must have real estate in your portfolio right this minute.

Forbes Columnist: ‘Who the Hell Cleared This?’

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Many investors are interested in real estate to diversify their portfolio from stocks and bonds.
real estate,REIT,invest,Fitchel
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2013-41-23
Tuesday, 23 April 2013 07:41 AM
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