Real Estate Investing Without Tenants, Toilets or Trash

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Land for sale in the Western cape area of South Africa
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A common investment strategy is to buy a house or apartment and rent it out for income. Frankly, this seemed like too much work. My mother's third husband was a landlord, and he had his share of headaches: tenants who were late with the rent; plumbing that needed repair; and trash left in the units that my mother had to clean up.

Having been exposed to that as a young adult, I decided that an easier and cleaner way to build wealth was via stocks. I could sit in the privacy of my home, do research on my computer and buy and sell investments with a click of the mouse. But I always wanted to add real estate to my portfolio to diversify my assets and reduce my risk, should stocks lose value. While both stocks and real estate generally go up in value over time, they don't move in lockstep.

Investing in REITs

My first foray into real estate investing was purchasing publicly traded real estate investment trusts. REITs generally invest in income-generating properties, trade like a stock and often pay high dividends. A few shares of a REIT or of an exchange-traded fund that holds shares of different REITs is a quick way to diversify. It's also a liquid investment and can be sold five days a week when the stock market is open if an investor needs cash. The price of REITs can go up and down just like individual stocks so like all investing, it has its risks.

Investing in Raw Land

A year and a half ago I attended a presentation by land banker Jenny Flynn on Antelope Valley, about 60 miles from Los Angeles. It's one of the few areas in Los Angeles County that hasn't been fully developed, and many parcels have been zoned for different types of construction.

Warren Buffet has investments in Antelope Valley, which has become a hub for solar developers. One of his companies, MidAmerican Energy Holdings, is reportedly spending nearly $3 billion to build a project. When completed in 2015, one solar project will provide 579 megawatts of clean energy, enough to power 400,000 homes.

Buffet also has a stake in BYD, a Chinese company specializing in rechargeable batteries and vehicle manufacturing, which selected the Antelope Valley city of Lancaster for its first manufacturing facilities in North America. The company is manufacturing electric buses and large-scale battery systems in two facilities totaling 160,000 square feet.

She also discussed how Walmart (WMT) now has several locations in the area, and rapid construction is occurring on health care facilities and residential communities. If I were going to buy raw land, this seemed like a pretty good place to do so.

Taxes Must Be Paid, and No Income Is Generated

Investing in raw land is risky. No income is generated from the asset, and property taxes must be paid. An investor is speculating that economic and population growth will occur, pushing up real estate prices.

When Flynn indicated she had parcels for sale starting at $20,000, I knew something would fit within my budget. I had an individual retirement account that I had rolled over from a 403(b), and it contained $44,000 worth of stocks. Selling my stocks would not create a taxable capital gain since the funds were held within an IRA. So I sold the stocks, bought a parcel and kept some cash in the IRA to pay property taxes for a few years. Based on the testimonials of other investors, some choose to pay in cash, while others prefer to own land within an IRA.

I only invested in raw land after I was confident I had enough investments in liquid assets. I also had no plans to withdraw from the IRA until retirement age, so I had time to wait for the land to increase in value. The majority of my wealth is still invested in U.S. and international stocks and ETFs. Investing in real estate can be risky, but can also provide much needed diversification to an all-stock portfolio.

The information contained herein is strictly for educational and illustrative purposes, providing commentary, analysis, opinions, and recommendations and should not be considered investment advice for any specific subscriber or portfolio or an offer to sell or a solicitation to buy any security, property, or asset.
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