Taming the Beast: Wall Street's Imperfect Answers to Making Money

Summary

• Real estate is among the diciest investments due to its heavy reliance on debt. Few can pay for property with cash, so they need mortgages. But if not handled properly, debt can be one’s undoing.
• Shelter, a primal human need, has become a major asset class for big investors and ordinary people alike. Since World War II it has zoomed in inflation-adjusted value, yet this growth has been in fits and starts. After the 2000 tech bust, the Federal Reserve made borrowing money cheap, and that move touched off a housing craze that went too far.
• Meanwhile, real estate investing, once a local matter, has become nationalized. Wall Street raked in profits by packaging mortgages into bonds, called mortgage-backed securities. Lewis Ranieri of Salomon Brothers invented the market for mortgage-backed securities in the 1980s. But the eagerness to get in on this boodle let many lenders relax standards, and they offered gimmicky loans that ended up blowing up as the home owners could no longer afford to pay. The collapse of mortgage bonds almost put the world into another Great Depression.
• Despite the real estate pile-up, ways remain to profit from property. You can be a landlord yourself, although this may not be worth the hassle. Or you can invest in real estate investment trusts, entities that pay nice dividends and have a tax advantage. These are professionally managed organizations that own real estate and are publicly traded.
• One key to tell a good REIT from a bad one is its debt load. ...