Real Estate - An investment vs. a business

Real Estate investing has come back in vogue.  This is due mainly the “buy low, sell high” mentality.  The 2008 Great Recession took a big toll on real estate.  Sure the financial crises, bank lending, governmental issues and more contributed to that, but in all candor the real estate investors have to take some of the blame also.  At the end of the ten year accelerated real estate boom, people and institutions were investing on market euphoria.  I call it the next idiot approach.  Be it the stock market or real estate, prior to a market correction people jumped in based on what others were doing and what others were investing in, what others were proclaiming as high returns and prices – and to play you had to meet or beat those prices.

Those investors had no right to be in the market.  Investing on emotion is not the way to go; investing in the fundamentals is.  Some believe that investing in solid bricks and mortar that the can seen, touched, and controlled in is a good way to go.  I don’t disagree, but I also think looking at the fundamentals as an investment is key.

I’ve heard people say ‘”it’s the leases I’m investing in”.  After all it’s the tenant’s payment on those leases that allow for the landlord’s payment for the mortgage, operating expenses and profit of a building.  Banks are again lending on deals where the real estate investment fundamentals work.  Investors are again investing where the real estate fundamentals work.  Rates are low. Distrust of the stock market remains high.  Real estate is a good investment choice.

However, to the point of the article, investing in real estate requires more expertise and hands-on activity than passive investments.  There is a management component; rent collection, leasing the space, maintaining satisfied tenants, building maintenance issues, monitoring and staying in compliance with government regulations, etc.  This is the very reason many people pass on real estate as an investment option.

There is a solution.  Hire the expertise of a good property management company!  Let them handle most of the day to day issues.  The cost of such property management should be built into you cash flow projections before you put in an offer.  What you will have accomplished is an investment you control, know something about, and are free of the day to day business aspects of the investment.   So for those that believe in buy low and sell high, are there any of you out there that think we are at a peak in a business cycle for real estate?