As a financial advisor for the past 28 years, I’ve been asked about real estate hundreds of times. “Should I be investing in real estate?” “What kinds of real estate should I invest in?” “How do I get started?” “What are the risks?” “What are the benefits?” “I’ve heard there are some good tax benefits.”
My earliest memory of a real estate transaction was when my parents built a new house in Dallas Center, Iowa. Forty years later, that house still sits on the west edge of Dallas Center, with just a few other homes around it. I remember listening as my parents finalized plans and negotiated a contract and price. I also remember when we moved 2 years later that it was another negotiation to sell. My parents also owned a few developmental lots and a few rental properties over the years. I found it pretty fascinating at 12 years old.
Some of the wealthiest people in the world made their fortunes in real estate. In Iowa, and most states, some of our wealthiest residents own large amounts of real estate in cities and farmland. When I sat down with some of these people, the thing that stood out was their consistent advice. “You make money when you buy real estate, not when you sell it.” You have to know what you are doing, and you have to buy real estate at the right time and right price to make it a “good” potential investment. You also need to be able to afford the mortgages and taxes, so you can carry the property through the lean times. Many times, I’ve heard people tell me that it sure sounded like it would work, until it didn’t. The benefits COULD include very positive cash flows, significant capital appreciation, tax benefits, depreciation, added diversification, and that you have something tangible vs. a number on a screen. But, again, you need to know what you’re doing and have the time to do it.
So, what are some of the ways to get into real estate investing? That could be a book; I’m sure there are hundreds. But for the sake of this blog, I’ll list some of the most popular: single family residential homes, multi-family commercial and residential homes, apartment buildings, strip malls, hotels, retirement communities, small and large office buildings, sports complexes, farmland, developmental ground, vacation homes, vacation rentals, and restaurants. In your Foster Group portfolio, we invest in REITS, real estate investment trusts. This is a fund that owns a basket of income producing real estate properties. You get access to a variety of properties at a lower entry point.
Every one of the above types of real estate carries pros and cons, risks and rewards. I’ve seen wild successes and flaming strikeouts. Our best advice is to find and talk to someone who has been doing the type of real estate investing you are interested in and pick their brain about the right and wrong ways to do it. If that person has a great idea to try something in which they have no history of success, I’d suggest some serious caution. As you contemplate diving into real estate or any other investment, talk to your financial advisor, your tax advisor, and your attorney to get their help on how it fits into your overall plan.