Real Estate Investing

Real Estate Investing Without the Dirt

June, 2012
by Gerald Townsend, Financial Editor

If you own a home, vacation home or rental property, you are a real estate investor and know the pros and cons of real estate ownership. Perhaps you want to make additional investments in real estate, but don’t have the necessary funds, don’t want the management headaches that come with ownership, or don’t have the time required to deal with it. How can you invest in real estate if your money, time or interest is lacking? Here are some ways to invest in real estate – without all those dirty tasks?

Partnerships

For some investors the answer is real estate partnerships. This could be as simple as buying a property jointly with another person or as complex as being an investor in a real estate limited partnership with hundreds of other people. In a partnership of just a few people you do reduce your financial risk and the management hassle may be somewhat lessened, but you can also encounter new problems. Examples: What if some partners are not pulling their weight or not contributing to the maintenance of the property? What if those people you liked so well when you initially asked them to join with you in the partnership turn out to be very difficult people to get along with?

With the larger real estate limited partnerships you may not have the “people problem,” but there are other issues. The fees charged to manage the property and operate the partnership can be substantial, and as a “limited partner” your ability to do anything regarding the property is very limited. At some point the partnership may sell the real estate and distribute the proceeds, but it is difficult for you to sell your interest in the partnership for a fair price in a short period of time. These types of partnerships, much like real estate time-shares, are often easy to get into, but almost impossible to get out of.

Real Estate Investment Trusts

Real Estate Investment Trusts (REITs) can be an answer to the above problem of an inability to get out of an investment. Although some REITs are not traded, many are publicly-traded investments, which mean you buy and sell them just like any other stock. There a variety of REITs, so you can focus in a specific area or diversify your real estate investments. Here are some examples:

Timber – This is, obviously, a “growing” investment. Plum Creek Timber (PCL) and Weyerhaeuser (WY) are two that own large amounts of timberland. They also pay dividends of 4.2% and 3.2%, respectively.

Health Care – HCP, Inc. (HCP) is a REIT that invests in properties serving the healthcare industry, such as senior housing, life science, medical offices, and hospitals. It has a yield of 5.0%

Apartments – Equity Residential (EQR) engages in the acquisition, development and management of multifamily properties (apartments). It has a yield of 2.2%

Office and Industrial Buildings – Boston Properties (BXP) owns and develops office properties and has a yield of 2.2%. Brandywine Realty Trust (BDN) is engaged in the ownership and management of both office and industrial properties and is yielding 5.4%.

Commercial – Kimco Realty (KIM) specializes in neighborhood and community shopping centers and provides a 4.2% yield. Realty Income Corp (O) owns both commercial and retail properties and has a 4.6% dividend yield.

Real Estate Industry

Of course, you are also making an indirect investment in real estate when you buy stocks of companies such as Home Depot (HD) or Lowes (LOW), which are retail stores for home improvements. Similarly, there are many other companies in industries that support or benefit real estate.

Gerald A. Townsend, CPA/PFS/ABV, CFP®, CFA®, CMT is president of Townsend Asset Management Corp., a registered investment advisory firm. Email: Gerald@AssetMgr.com