in popularity. These investment vehicles allow an investor to tap into commercial real estate, such as apartment buildings, hotels, or shopping malls, without acquiring the typical headaches involved in being a landlord. And they’ve enjoyed a truly spectacular run–the U.S. REIT index has produced returns of more than 30% for three of the past four years.
But will these glory days continue? “Trees don’t grow to the sky,” concedes Quintin Primo, chairman and CEO of the real estate investment management firm Capri Capital Partners in Chicago. Though the next five years will likely see the REIT sector cool off, the next 12 to 18 months should continue to see that level of performance, he predicts. That’s because macro factors–such as private equity firms snapping up REITs and investors stocking up on real estate to diversify their holdings beyond stocks and bonds–show no sign of abating. And don’t forget the powerful lure of the dividend: By law REITs are required to distribute 90% of their income to shareholders.
As for the residential market, it may bottom out, predicts Primo. Thanks to key drivers such as immigration and a population surge of young Americans entering their prime home buying years, real estate–while undergoing some gyrations at the moment–may be a better place for investors than doomsayers can foresee. Says Primo, “In the next six to nine months I think we’ll begin to see growth evidencing the fundamental health of the housing market.”
Stocks: A Goldilocks market–but tread carefully
Rather than real estate, the primary investment vehicle for Wilbert and Marie Tremble of Atlanta has been the stock market–through their 401(k) plans in which they’ve already set aside some $400,000. In the year ahead the couple has some important financial decisions to make as they provide for their three sons, Brandon, Christopher, and Matthew.
It’s a critical year because the General Motors plant where Wilbert, 39, works as an industrial engineer is scheduled to close in 2008, maybe sooner. Rather than stay with GM and relocate his family, he’s evaluating his next career move. So while he and Marie, a 42-year-old supervisor at Home Depot, together earn more than $120,000 a year, they figure 2007 is the year to get serious about planning their financial future.
Part of their long-term plan involves a career change for Marie, who aspires to be a full-time photographer. In 2004, together with another couple, the Trembles opened Pattrem Studios, a full-service photography studio located in Stone Mountain, Georgia. Marie is one of the principal photographers, but the growing venture doesn’t generate enough income yet for her to work there full time.
The value of a well-timed investment isn’t lost on the Trembles. Wilbert jokingly tells his wife that if she had put $10 a week into Home Depot stock they wouldn’t be married today because she’d be “sitting on a boat somewhere.”
What can investors like the Trembles expect from the stock market for the rest of the year? Look at the Dow Jones industrial average, and it seems as though the market is