Aaron Katsman 58.
(photo credit: Courtesy)
Buy low and sell high. We are generally reminded of that old investing refrain
when we make a bad stock pick and end up doing the opposite – sell low. For many
investors, while buying low and selling high sounds great in theory, in practice
it’s hard to implement.
How does one know when an asset is priced
cheaply? It’s not easy to know when assets are trading at bargain-basement
levels. But sometimes, knowing that something has dropped a lot is enough to
make it a good investment.
Take, for example, US real estate. After such
a serious fall, can prices keep dropping? The answer to the question is a
resounding – maybe! But for an investor, that question may be less relevant. It
is virtually impossible to pick the exact low price of any asset. What is
possible is to buy a quality asset at a huge discount; i.e., buying
US real-estate markets have been crushed. With prices in some
markets 30 percent to 50% lower than they were a few years ago, real estate
seems to be cheap. I’m certainly not saying that we are out of the woods and
prices could continue to trend lower. It’s just that with the Federal Reserve
basically committing to low interest rates for another two years, and mortgage
rates at recordlow levels, bargains abound, and for an investor who has a
long-term outlook, there could be huge upside potential.
important to note that US real estate is very much localized, and while some
locales are in a mess, other cities are starting to see prices move higher. As
an interesting aside, the iShares Cohen & Steers Realty Majors Index (ICF)
is up nearly 3% this year; for comparison, the broader S&P 500 Index (SPY)
is down more than 4%.
For those of you looking to start getting involved
in real estate, here are four ways to go about doing it.Investment
Go out and buy an apartment. As an individual property owner you are in
control. You decide when to buy or sell, how much rent to charge,
There are a few negatives to an individual buying an investment
property. A common problem is raising the large amount of money needed to get
Even then, the high initial minimum investment means that most
beginners are only able to purchase one property, and this lack of
diversification enhances the risk involved with the investment.
also the headache of being a landlord and having to deal with leaky faucets and
burst pipes.Real Estate Investment Trust
Another option is to invest in
a Real Estate Investment Trust (REIT). A REIT is a trust company that raises a
sum of money, to buy, develop, manage and sell assets in real estate. By
purchasing one unit of a REIT, you are purchasing a part of a managed
real-estate trust, providing much greater diversification.
similar to investing in regular stocks, so there is no prohibitive minimum
investment and they are publicly traded on major stock exchanges, providing
relatively quick liquidity. In addition, REITs are normally required to
distribute 90% of the income that was generated from their real-estate holdings.
This way, you receive your rental income without having to fix the plumbing!
There are many people out there peddling realestate deals. For a
reasonable investment you can become a limited partner in a group that is going
to buy a building, a strip mall or some other property whose price is well
beyond the average person’s means.
Keep in mind that you need to do a lot
of due diligence on the people behind these deals to make sure they are honest.
The media is full of stories of fraudulent real-estate deals.Related
Ask your financial professional for stocks that are related to the
real-estate market. They may include publicly traded roofing, landscaping and
lumber companies, to name a few. These companies have the potential for price
appreciation if the US construction market stabilizes or starts to grow in
Whether looking to enhance your income, or for a capital gain, at
these depressed levels, real estate is worth taking a look
Aaron Katsman, a licensed financial
adviser in Israel and the United States, helps people with US investment