Perspective on Real Estate

January 12, 2005

January 19, 2005

January 26, 2005


The minefields of investing

Infrastructure is the minefield for real estate investment. Infrastructure consists of all natural and improved factors or conditions that can possibly affect your property, such as roads, access, foundations, geology, sewage, walls, weakness against flooding, quakes or fire.

Infrastructure is the foundation under your assumptions, both existing and what you plan to ask the governing body to allow you to improve. There is nothing small about infrastructure, regardless of expected cost, since it has the ability to ruin your expectations, your perceptions and your project's profitability.

It is the razor-sharp blade of ignorance that dulls the deal for inexperienced investors or builders. Infrastructure is the area of damaging innocence on the part of city councils and supervisors who simply ignore its inevitable decay. It is San Diego's biggest negative compensation for our great climate; our infrastructure is billions of dollars behind our needs.

And there are other minefields out there, such as insurance and liability, which could wreck your pro-forma, no matter what the past owner's experience with that property.

You are never an amateur when you buy or invest in a property. You must be disciplined and patient. You must have proven legal counsel looking out for you, and an engineer with whom you consult before you've made your pro-forma or deal. You must get second opinions on any action that can tap into your liability or profitability. You must never make decisions based upon intuitive feelings; this is never an option, rather it is a necessity for any investment in real estate.

The power rests in the review process that checks what you have bought and what you intend to do with it. You can own property but you have no power over it. You may think you do, but you are sadly mistaken. One of the great traps of real estate development or investment is that it appears so simple, but it is not.

This is why I absolutely will not compromise with having the best adviser, partner, or builder in regards to my property.

That is another reason I like joint ownership of places that would bankrupt me if the deal failed or performed badly.

That's why I have often recommended investing in a real estate investment trust (REIT) whose track record can be checked and properties owned can be inspected. REITs have the best managers of properties.

I have cautioned many an investment class to not buy a property if it requires management -- another home you intend to rent out, small apartment, small retail center, or office building. You must know what you are doing so that revenue and mortgage service monies do not bleed through your pocketbook.

We are experiencing a time of increasing risks, so one must exercise caution before plunging into anything which takes more than you can risk losing. In addition, the changing texture of the economy is creating even more risks. Take more focused time, with dependable counsel, so that you know what you are doing; check every contingency before buying something.

I do not mind being redundant on this, for your failure can be due to unfocused politicians, stupid economists, greedy political hacks who don't know the truth if it knocks them silly (and it eventually will) -- the failure will belong to you and what was once promising.


Goodkin has been a business ethicist and housing analyst since 1956. He may be reached at sanford.goodkin@sddt.com.


January 12, 2005

January 19, 2005

January 26, 2005