A REIT For The Long Run
The Dynamic Wealth Report
May 5, 2008
Who Says Real Estate Is Dead?
One billion dollars. You don’t need me to tell you that’s a lot of
money. A few years back, Forbes magazine started publishing a list of
the world’s billionaires. In the process they’ve become the judge of all
things related to the truly wealthy.
I love to read about how billionaires made their money. Some worked for
years building companies and becoming titans of industry. Others had
their money handed to them. It’s funny. No matter the method used to
build their wealth, everyone’s interested in how they spend it.
What would you do?
How would you spend your billions? If you had more money than you knew
what to do with, what would you do? Forbes recently profiled the
billionaire Mukesh Ambani. He’s the fifth richest man in the world. He
knows how he’s spending his money. He decided to build a new home for
his family.
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I guess it’s not so much a home as it is a tower.
Yep, a tower. He’s spending more than $1 billion to build a 27 story
tall sky scraper in downtown Mumbai, India. He’s setting a record for
the most expensive home ever. You’ve got to love the creativity of the
rich. Just to put a unique touch on the home, he mandated that no two
floors are alike. Not in the way they are designed, or in the materials
they use. Can you imagine that?
The home has taken more than 4 years to build and is scheduled to be
completed in January 2009. No doubt the TV networks will be competing for
exclusive tours. Honestly, I can’t wait to see what this place looks
like.
It’s a different story around the world.
The cost of my home is nowhere near the billion dollars being spent in
India. But I’m always looking at real estate markets. I recently read an
interesting article about the Arizona real estate market. The title says
it all.
Foreclosures are up 1,100%
With that title staring me in the face how could I not read the article?
Long time readers know that I own property in the Phoenix area. Aside
from my own home I have a number of rental properties, and I’m always
looking for more. So when foreclosures in Arizona are up 1,100% it can
impact my bottom line.
Thoughts of falling housing prices and money drying up run through my
head. I started thinking about the food riots happening in parts of the
world. The price of everything is going up . . . a sure sign of
inflation. I started seeing the world crumble.
I need to buy gold and silver to hedge against inflation. I should stockpile
some rice and beans in case of food shortages. How much do I need? How
do I store it? Is this a sign of the end? Is it time to panic?
Then I read the article further. Foreclosures are up 1,100% in the month
of January. One particular area of the Phoenix area had seen
foreclosures skyrocket. Last year there were 2 foreclosures. This year
there were 24.
Huh? Ok, let me read that again. My friends, that looks like a
meaningless statistic designed to impart fear (and sell newspapers).
I did a little research. In the area of the foreclosures, there’re more
than 5,000 homes. The 24 being taken by the banks represent less than
1%. Scratch the plans for buying gold and silver. Cancel the bulk orders
of rice and beans. Suddenly that 1,100 percent number doesn’t seem so
frightening. You’ve got to love how statistics can be manipulated.
The real estate industry is still tough.
Maybe I’m getting numb to the news. Maybe I expect the news now. Anyway
you cut it; real estate news seems less scary. The news doesn’t seem to
be getting any worse. We haven’t been dragged into a depression. We
don’t have food lines.
This is the time to profit.
Back in April I wrote about investing in the iShares Dow Jones U.S. Real
Estate Index Fund (IYR). At the time it was yielding more than 5% and I
bought some. The fund holds a selection of some of the best REITs in the
market. Today its yield is still over 4.5% (as its price has appreciated
since I bought it). You won’t be finding that in government bonds any
time soon.
Some of these REITs have rallied recently. But they are still down
substantially from where they were a year or two ago. I like this as a
long term investment for patient investors. Remember, I don’t care if
this investment trades up or down over the next few days or weeks. I’m
looking for a nice return over the next 5 to 10 years. I would seriously
consider buying some for your own portfolio.
• Coal Index (Up 24%)
High oil prices continue to impact other industries. Coal prices are
moving higher. Demand is increasing as power plants start looking for
cheaper alternatives to oil. The industry is being lead higher by
Arch
Coal (ACI) which posted gains of 35% in the last month.
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