Best places to put your money now: where in the world can you invest your cash in 2003? From equities to real estate, diversification is the key to finding top returns - Investing

Black Enterprise, Jan, 2003 by Donald Jay Korn

real estate: paper or property

While stocks have sagged, real estate values have risen. One way to put real estate into your portfolio is though real estate investment trusts (REITs) or REIT mutual funds. Equity REITs, the most popular kind, are essentially companies that own many properties and trade like stocks.

During the past three years, REIT funds have gained nearly 13% per year, according to Morningstar. "They've had a good run," says Garry Bridgeman, first vice president-investments at Merrill Lynch in Atlanta, "and they belong in many portfolios. However, investors often rush into asset classes that have done the best recently. Sometimes you're better off with asset classes that have not performed as well lately."

As an alternative to REITs, you might decide to own investment property directly. Last year, for example, Sonia Daniels, 31, bought a three-bedroom house in Southwest Atlanta.

"It's an up-and-coming neighborhood, not far from downtown," she says. "I look for neighborhoods that are being revitalized because that's where you're likely to see properties appreciate." Daniels reports that she purchased the house for $89,000, paying 5% down. "The house needed a great deal of work," she says, "so I wound up putting around $25,000 into it. Today, that house is valued at $155,000." Since the house has been renovated, Daniels can either sell it or rent it out. "Today, with the weak economy, quick re-sales have become more difficult," she says, "so I'm doing more renting."

The house rents for $1,200 per month, which is enough to cover the costs of interest, taxes, insurance, etc. "I might sell it eventually or just keep it for the ongoing income once the mortgage is paid and I own it free and clear," Daniels says.

A few years ago, Daniels sold an insurance agency and went into the real estate business full-time. "If you're interested in owning investment property," she says, "start slowly. Make a small investment to see how it works. Your best bet might be to partner with someone in your community who has been doing this for a while."

Whether you're buying for a quick profit or long-term gains, a real estate truism is that you make money when you buy a property at a good price, not when you sell. "Establish a relationship with a seasoned real estate appraiser so you can understand the true value of your prospective property," says Genevia Gee Fulbright a CPA in Durham, North Carolina. "If you're planning to rent your property, positive cash flow should be your focus." That is, you want to be confident that the income from the property will exceed all the out-of-pocket costs, including mortgage interest. Real estate tax breaks may shelter that income and perhaps even provide a paper loss to offset other gains.