wise, you will have to figure out how to charge each tenant. If you include it in the rent that could make your units less competitive.) Apartments offer the highest consistent income vs. any other real estate investment. But they do not appreciate as fast as some oth- ers. Investors are few because they require deep pockets to buy and main- tain, and they can have problem ten- ants and frequent turnover. Even if you hire a manager, you have to manage the manager. (Tip: avoid flat roofs. The inventor should have been hung.) Commercial property (offices, retail and industrial) is great — until it isn’t. It has low demand and conse- quently less appreciation. When it is rented the income is high, there are long-term leases, and in a triple net lease the tenants pay all the expens- es including maintenance. But when it is vacant it can take months or even years of no income while the owner pays for repairs and PITI. The nation- al vacancy rate for commercial prop- erty is currently19.2 percent, and it is much higher in some places. COVID has taught many companies that telecommuting works and that they don’t need as much space as they used to. That will negatively impact the commercial market for years to come (how many “for lease” signs have you seen recently?). Raw land (including lots) has no maintenance, but it also has no income while the owner pays PITI. Most investors who are not devel- opers avoid it. Buying land is spec- ulating that it will appreciate, and speculating is not investing. Farmland has historically been the best dependable protection against inflation. It has a 70 percent correla - tion with the Consumer Price Index (CPI) and a 79.84 percent correlation with the Producer Price Index (PPI),
the two main measures of inflation (source: The University of Illinois TIAA Center for Farmland Research). That is the best consistent inflation protection of any investment. Farm- land is “gold with yield.” Agriculture is our most important industry, and when inflation increases the price of food, farmland becomes even more valuable. People never get tired of eating. However, the annual return on farmland is less than many other real estate investments, and unless you know how to manage it you must hire a professional. A farm is a long- term investment (at least 10 years.) Real estate notes offer high yields secured by property. In a self-di- rected Roth IRA (SDIRA) the profits build tax-free. Traditional investment firms do not offer them. Find a SDI - RA custodian, not just an administra- tor (this is the only industry I know of in which custodian is the top job). Consider diversifying with gold and silver. They have been a store of value and inflation hedge since Biblical times. Unless numismatics is your hobby, invest in low premium bullion coins such as Austrian Coronas, Mex- ican 50 pesos, and American Eagles. Premiums always disappear over time. A free educational newsletter is at www.the-moneychanger.com. “Diversification needs to be sufficiently high that a failure in one part of the portfolio does not lead to the whole edifice collapsing.” —Rob Vinall
how do you choose? Each type has pros and cons. I own or have owned all the following except apartments, so I have some experience, good and bad, in each type. Single-family house prices are booming almost everywhere because of historically low interest rates, demand outstripping supply, and flight from the cities. But, as the legendary financial writer Richard Russell said, “trees do not grow to the sky.” Houses can and do lose value. They are extremely sensi- tive to interest rates. The higher the rates the fewer people qualify for financing, demand drops, and prices decline. (Tip: To maximize your income, buy houses that have a separate guest house.) “Plexes” (duplexes, triplexes, etc.) do not appreciate as well as houses, because demand is lower, and it may be harder to qualify for financing. However, plexes provide higher income than houses. Some owners live in one unit and rent out the other(s). (Tip: Try to find plexes with separate utility meters. Other-
W. J. Mencarow has been investing in notes since the 1980s. He teaches what he knows to help others and offers a free introductory e-course at www.PaperSourceOnline.com.
thinkrealty . com | 63
Made with FlippingBook Online newsletter