Is real estate a wise investment?

There are fewer investments that have shown a better return. However, the key to investing wisely in real estate is understanding how the industry differs from others.

For example, when the defense industry dips, it usually shows a national decline and the stock prices of defense-oriented firms drop across the board. The same is true of most industries. They are impacted nationally.

That is not the case with real estate, which is actually an industry and investment driven by local conditions. One community may suddenly lose a manufacturing facility, and almost overnight the market is flooded with properties for sale. An excellent example is southern California. Several years ago, when defense cutbacks began an excess of homes went up for sale, increasing the supply and lowering demand. There, it was a buyer’s market. At the same time, Bakersfield, a community less than 150 miles from Los Angeles continued to experience high demand for real estate. With supply short, it was a seller’s market.

Obviously, the key to successful real estate investing, like stocks and bonds, is to buy low and sell high. But, how do you know when the “low” has been reached? Or, for that matter, how can you judge when you property may be peaking in value?

Some investors rely partially on the media. They read the daily newspaper, watch television and follow the trends. Although the media provides a good deal of information, remember that by the time things are printed or broadcast, the news may be old.

For instance, you will find statistics frequently quoted in the media that have been supplied by the National Association of REALTORS (NAR). But, NAR statistics-like most- tell you where things have been, not where they are going.