News Analysis date published New: 
Tuesday, November 13, 2012 - 08:30
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Tuesday, November 13, 2012 - 11:50
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Tuesday, November 13, 2012 - 08:30

Now May be The Best Opportunity in a Generation to Buy Real Estate

Tuesday, November 13, 2012 8:30 AM

For centuries, land has been the status symbol for wealth and power. In fact, it wasn't that long ago that you couldn't even vote without being a property owner. Of course in those days, just like today, certain locales were far more desirable than others.

When President Thomas Jefferson dispatched emissaries to France for negotiations in 1801, the resulting Louisiana Purchase treaty handed America 830,000 square miles, essentially doubling the size of the country. The $15 million purchase price netted down to just 3 cents per acre -- a bargain even back then.

France didn't know it at the time, but Jefferson would have paid $10 million for just one city, New Orleans. Control of the strategic port secured navigation and trade along the Mississippi river, which is what he was really after.

The world has changed immeasurably since then, but prized real estate certainly hasn't gone out of style.

One developer paid $25 million for a vacant 2.1-acre parcel on the Las Vegas strip last year, more than $11 million per acre. And that's nothing compared to some densely-populated locations.

High-end property commands an average rate of $1,700 per square foot in Rome, $2,160 in Manhattan, $2,960 in Hong Kong, and $4,534 in London.

The most expensive market? That honor belongs to Monte Carlo, where the jet-set elite are willing to pay $5,450 per square foot for luxury property.

But wait, you say, didn't land prices collapse in the wake of the housing crash? Yes, in some places (which only makes them better buys today). But other cities were dealt a glancing blow and have already fully recovered. And there wasn't even a ripple felt in many cosmopolitan markets overseas, where property values continue to march higher.

In Switzerland, for example, residential property values have climbed 27.5% over the past five years. They're up 28.5% in Malaysia, 30.1% in Taiwan and 54.5% in Israel.

Forget all the variables for a moment and just consider the two immutable facts below.

Real estate is a classic example of a scarce resource that will only grow more valuable over time.

1) There is a fixed amount of habitable land on the planet, even less with access to clean water and reliable infrastructure.

2) The world's population is growing by 200,000 people (births less deaths) each day.

This plays right into my wheelhouse. It's what I like to call "investing in Scarcity."

As Mark Twain famously said, "Buy land, they're not making it anymore." And with more and more people crowding into a fixed amount of space to live, work and shop, real estate (be it residential, office or retail) is a classic example of a scarce resource that will only grow more valuable over time.

That's exactly why guys like Warren Buffett are placing big bets on land and buildings. We tend to associate ultra-rich business tycoons with hard assets like steel and oil, but a disproportionate number of the world's billionaire's have invested the bulk of their wealth in real estate.

Ted Turner owns more than a dozen sprawling ranches from Oklahoma to Montana. This collection spans two million acres (an area more than twice the size of Rhode Island), making the media mogul one of the nation's largest private landowners.

Turner's explanation is simple: "I never like to buy anything except land. It's the only thing that lasts."

He's not alone.

Liberty Media CEO John Malone recently scooped up one million acres of timberland in Maine. Sam Zell, No. 66 on the Forbes 400 list with a net worth of $4.9 billion, made a fortune by investing in commercial office properties. His current portfolio includes housing in China, shopping malls in Brazil, and the famed Waldorf Astoria Chicago hotel.

The point is real estate can be a sound, durable investment -- not to mention a great way to protect against the ravages of inflation and a depreciating dollar. And its low correlation to equities can provide some buoyancy if the economy deteriorates and stocks are sinking.

Action to Take --> Now is an opportune time (arguably the best in a generation) to buy commercial and residential real estate. There are distressed properties selling for pennies on the dollar, and interest rates to finance these purchases are near record lows.

Unfortunately, most of us don't have the bankroll to buy an office tower, an apartment complex or a retail shopping center. You could dabble in buying individual properties like foreclosed houses, for example, but it requires a lot of work (and risk) for the investment to pay off.

Instead, I wrote about a group of stocks that might just be the next best thing in a recent issue of my Scarcity & Real Wealth newsletter. They're called real estate investment trusts (or REITs for short). These stocks allow you to act like a landlord, collecting a healthy income stream from a diverse portfolio of properties. They're the single easiest way for individuals to invest in real estate without having to put up large amounts of money or spend a lot of time on maintenance and administration.

There are a handful of REITs that trade on the stock market, but I've found two that I particularly like. In fact, I profiled both of them in the September issue of my Scarcity & Real Wealth newsletter. [To learn more about how I'm investing in Scarcity, visit this link.]

Nathan Slaughter does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.