QUOTE (ThomasBeyer @ Jun 11 2010, 05:56 PM) such as a low risk stock like
Bank of America , or
BP, or
Royal Bank, or
AIG ?
all "blue chip" / low risk stocks that tanked 50-80% .. and compare it to a "high risk" real estate JV with a REIN member where capital loss risk is minimal and upside is virtually guaranteed by an experienced operator using proven REIN research/buy/hold/upgrade/manage/sell principles ?
A properly diversified stock portfolio shouldn`t have gone down 50%, even during the worst of the crash. Secondly, the vast majority of companies have recovered. You`re taking an unbalanced approach to the debate by including only negative stories. If we get to pick and choose, can I pick my US REIT preferred shares, up from $2.05 to over $20 in less than a year? Or how about Teck, from 7.00 at the beginning of 2009 to $36 currently?
Finally, anyone with a stock portfolio that was down 50%, only lost that 50% if they sold. It just happens that the stock market gives you a precise "price" every second the market is open. It doesn`t mean its a good, rational, or fair price, but it`s there. Real estate moves in similar ways, especially with leverage, but the trick (As in the stock market) is to have the staying power (financial and emotional) to not sell low.
Many, many real estate investors (including some REIN members!) bought 20% down properties before the peak (say in 2008). Those properties had almost certainly declined in value by 10% during the crash, likely more. Which wiped out 50% of the equity, or a 50% loss. I won`t mention the return for those who bought before the crash with 5% down. Those who have bought sustainable positive cashflow (==sustainable, diversified dividend yields) are fine and can hold on for the long term, short term paper losses notwithstanding. In fact, they should be better off due to the downturn, as there are bargains to be had on the buy-side.
I`m not anti real-estate (In fact, I`ve got more money in RE than the stock market) but I am in favour of being intellectually honest about the decisions I`m making. If I don`t compare all the options, how do I know I`ve selected the optimal choice? Using an opportunity cost is a way of comparing the options available to every given investor.
Michael