What are the three rules of real estate? Location, location, location. A North Carolina firm, Total Realty Management, hit that theme hard when it marketed undeveloped property to hundreds of Washington, D.C.-area residents — including teachers and Pentagon employees — in the early 2000s. With the wind of the housing boom at his back, owner Mark Dain was selling undeveloped beachfront lots for as much as $400,000 a parcel.
But the boom went bust and prices plunged to as little as $10,000 per lot. It turned out TRM used falsified appraisals and loan applications to allow people who couldn't afford the lots to buy in, while major banks allegedly looked the other way. The firm also attracted investors by falsely claiming prominent North Carolinians like Michael Jordan had trusted TRM with their money.
Dain pleaded guilty to a single count of conspiracy and served six months in prison. Three employees also did prison time, and civil lawsuits still abound in what authorities have called the biggest real estate scam in North Carolina history.
TRM was selling the land to people who wanted to live there, but also as investment property they could "flip" as prices rose. And with home prices rising again, flipping is coming back into vogue.
But investing directly in real estate can be incredibly risky. Most of us don't have the expertise to profitably renovate a home; fewer still know how to navigate the real estate market and not get stuck with money-losing property.
If you still want to try to make money in real estate, consider a Real Estate Investment Trust or REIT. As the name implies, it is a professionally managed organization that allows investors to pool their funds to buy and sell property. They tend to focus on a particular type of real estate — hotels, office buildings, apartment complexes, for example.
And many trade like stocks, which means the Securities and Exchange Commission monitors them. The SEC has a good primer on REITs on its website. Some things to consider:
- Make sure you understand the tax implications of investing in a REIT. If you don't, talk to a tax advisor.
- If you are investing in an exchange-traded REIT, you can check it out like any other company. Otherwise, be sure to read the fine print. Some REITs that don't trade on exchanges can be difficult to sell if you need to.