Land: The Only Thing That Matters(?)

When it comes right down to it, "Gone with the Wind" isn't about Scarlett O'Hara's love for Rhett Butler. It's really about her love of Tara. It's an enduring love affair between a woman and her real estate: "land is the only thing the matters." Pearl Buck came to pretty much the same conclusion in "The Good Earth" (does anyone even read that anymore?) about a Chinese farmer who never gives up on the importance of being a landowner, despite all the upheavals around him.

Are they crazy, or what?

There is something magical about owning land, it's true. I'm not even talking about owning the land you live in, which is a home, not an investment. And I'm not talking about farmers, for whom landowning is a business. I mean landowning as an income-producing investment. And that's where you can run into trouble.

Land is that most illiquid of investments. It isn't portable. It can't be sold quickly, and if you do need to raise cash fast, you won't realize its full value, even in a boom market. And yet, we continue to invest in it, even when General Sherman ("Gone with the Wind") or the impending Communists ("The Good Earth") threaten it. Real estate can fit nicely into a portfolio, but you can easily do that with REITs (Real Estate Investment Trusts) that give you access to real estate with the simplicity and liquidity of a typical mutual fund.

Nevertheless, people continue to invest in real estate directly, ignoring the problems. For example, back in the 1990s, my wife and I rented several apartments in a condominium. Many of the owners in the complex bought apartments specifically to rent them out. However, some of them bought at the top of the market, and when rentals became a glut on the market, they found rental fees wouldn't even cover mortgage, taxes and upkeep.

It gets worse. We had some terrible plumbing problems at one point--the landlord had to watch that quarter's profits disappear literally down the drain. Selling in such a situation would've resulted in a heavy loss.

As I mentioned in a previous post, I'm often drafted as an investment advisor (which I am most certainly NOT) for family and friends. Some retiree friends of my parents own several apartments they rent out. They can't get over the fact that they get income from these investments, and find the idea of other income-producing investments too confusing. However, they are stuck with investments that would be hard to turn into cash--and they're at an age where medical problems could require money quickly. And recently they had to deal with a tenant who stopped paying rent--months of no income, plus the legal fees for eviction.

For some, a pure real estate deal may be useful. But for many, other investments are a much more practical bet. Whatever you do, don't romanticize your investments and don't get your financial advice from classic novels.