If you had $700K, how would you invest? - Posted by Andy

Real Estate Investing Raw Land
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Posted by Sailor on August 09, 2005 at 18:03:11:

I agree w/Marc both that diversification is imperative & that the bubble has already been pricked in some areas. However, I do think that RE still has a place in one’s portfolio. The caveats here are to (1) not buy what everyone has been hocking their futures to buy, e.g. upscale SFR’s & Miami condos, & (2) make sure you make a profit when you do the deal; i.e. buy RIGHT.

My prediction is that middle & upper-middle housing w/be hit hardest because these homes are more than the buyers need to put roofs over their heads. Upper-income housing doesn’t suffer as much in down-turns, but the sales take longer & holding on so long for a single sale on that large a % of your assets can cause heartburn. The alternative is lower income housing, & that is where I’m putting some of my $$$. The cash flow is excellent, & it allows me to put some of my $$$ in raw land that has NO cash flow, but excellent appreciation. Even w/in RE you can diversify, but I like to avoid putting all my eggs in the RE basket, even though REI has been good to me for a long time.

I think the 1st investment for anyone should be basic education, starting w/ basic Personal Finance 101 (instead of expensive guru classes) @ your local college. In the meantime, start learning your market(s), & find a good attorney & CPA you can train. Join local investment groups for info & networking. One final caution: don’t believe your friends when they tell you how much $$$ they made investing in such & such–

Tye

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If you had $700K, how would you invest? - Posted by Andy

Posted by Andy on August 08, 2005 at 02:04:44:

Hi. If you had about $700,000 in pure asset to invest in any way you can, how would you invest? Would you invest everything in Real Estate? Or disperse it among real estate, stocks and other investments? I am not a seasoned real estate investor and not confident about buying investment properties. Besides, here on Maui, Hawaii, the average Single Family Home costs around $700,000, so I really don’t see myself investing around where I live. How would you feel about buying real properties in a state 5,000 miles away? Any ideas will be greatly appreciated. Thanks.

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Re: If you had $700K, how would you invest? - Posted by Marc in Taos, NM

Posted by Marc in Taos, NM on August 08, 2005 at 19:57:41:

These are really, really volatile times, Andy. I personally think that the inevitable decline in some real estate has begun…the data are only now coming in.

Here’s what I would do (and have done): Play it safe. Stay out of real estate, esp. since you’re a novice. Wait and check things again in 6-9 mos. and you’ll probably be able to find better deals and more “motivated sellers.” (Yes, you could risk losing some appreciation, but there’s alos a 50% chance you could suffer some depreciation. Those odds aren’t good enough.)

Make sure ALL the debt you have is long-term only at the lowest rates. Pay off all credit card debt.

Then, put 90-95% of the rest of most of your money in short-term CD’s of 6 or 9-mo. duration. Consider maybe 20% in some in foreign currency CDs: an FDIC-insured 6-mo. CD denominated in New Zealand $ is paying 5.35% from www.everbank.com, an American bank in St. Louis.

Put about 5%-10% of your funds, $35,000-$70,000, in a combination of: 1.) gold bullion (see www.Kitco.com for 1000g gold bars…put them in your safe deposit box); 2.) The Barclay’s gold bullion exchange traded fund (ETF), which you can buy on the stock market (symbol: GLD); 3.) Put $10,000 (the minimum) in the Vanguard Precious Metals and Mining fund (symbol: VGPMX). AND THEN FORGET ABOUT THIS 5-10% OF YOUR MONEY. Don’t check the prices every day, just look at it again in 5 years and you’ll be very happy.

In 6 mos., when your CD’s come due, take another look at real estate. Better yet, just wait until you hear people talk about how they are LOSING money in RE and are angry about it. By then, the Next Big Thing (probably oil stocks and mining stocks) will be the discussion of the day and money will be flowing out of RE into those.

Once you’re at a party and hear people talk about the Next Big Thing and bag on real estate, that’s your sign that it’s time to get in. You don’t want to buy stuff that everyone is talking about…you want to buy stuff people HATE. That’s how we make our money in this business, by buying right. And right now, it’s very, very hard to buy right because the fundamentals are just all out of wack.

Be safe…don’t listen to CNBC and Wall St. And study, study, study. Use this period to learn all about how real estate has TRADITIONALLY worked, because those days are coming back.

Good luck, and be careful.

Marc