How about those Assets?

At a recent apartment market economic conference presented by the Triangle Apartment Association, a financial professional with Wharton, Gladden & Co. LLC. said that many investment professionals now consider real estate one of the four main investment assets that every healthy investment portfolio should include. The others are stocks, bonds and commodities.

At Deaton, we've always discussed the commoditization of real estate. In other words, how can we get people to consider real estate as a "must have" in a portfolio? Do we start with the financial professionals who advise personal investment strategies? Or, with so many people overseeing their own financial futures these days, focus on the individual investor? We certainly don't believe you should place all your money in real estate. After all, if there is one common denominator among all investment strategies, it's the concept of diversity. High risk. Low risk. Domestic stocks. Foreign stocks. IRAs. On and on.

When valuing real estate as an investment, remember to compare it to other investments. For example, if you have $10k burning a hole in your pocket and you're thinking about a CD, for example, that will return 5%/year. Then, someone from a local multi-family property brokerage (ahem!) reminds you that 10k can be leveraged into an available rental property. So, you "run the numbers" (we don't like that term all that much) and see that on the surface, the property will also return 5%. After factoring in management, collecting rents, etc., you decide the CD is a better option.

I would encourage you to look again.

Let's talk about real return for a moment: Are you considering the debt reduction on the property as return? You should. How about annual depreciation? Or better yet, the rental income? And, best of all, you also get to factor in the property's appreciation over a number of years.

Remember too, that there are several ways to analyze a real estate investment, and not everyone's method will return the same level of performance. Find one that works for you and stick with it. Remember that real estate valuation is not a math problem.

Now back to your CD: How is it keeping up with inflation? Oh, and those pesky taxes will cost you as well. Any fees involved in buying it? For how long will it work for you?

So, any other thoughts on how to best invest $10,000?

In summation, even though we are in no way certified financial planners, we always encourage clients to use real estate as one component of a diverse, long-term investment strategy. What are you doing about your future?