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There are a great number of bond investors out there who are experiencing reduced returns due to economic factors.  Interest rates are very low, thus bond yields, though steady and safer than holding stocks, are quite small as well.  Hundreds of billions of dollars in retirement assets are invested in government and corporate bonds in this country.

·         Government bonds, frequently backed by the “full faith and security” of the U.S. or state government, are considered quite safe.  After all, they can just raise taxes to generate revenue.

·         Corporate bonds are a bit more risky, but they almost always pay higher yields for that reason alone.  You’re betting on the continued operation and financial health of a corporation.

Perhaps you’re a bond investor with substantial holdings in either or both of these bond types.  After all, most financial planners will advise you to diversify.  They’ll also point out that bonds are safer investments, and that makes their lower yields acceptable if you are near or in retirement.  All of this is very true, and we wouldn’t advise anyone to liquidate bond holdings to re-allocate money to real estate investing…unless they do their homework at least.

If you have considered moving money from bonds to direct real estate investment, here are some characteristics of these investment types that may help to you make a decision.  Remember, we’re talking about active investing, though you may hire others to manage your properties.

·         Historically, real estate has provided appreciation and rental yields at multiples of the yield rates of bonds.

·         The history of real estate in this country has proven the safety of the investment if done properly with due diligence and intelligent purchasing.

·         While bond yields suffer with inflation, the rental property investor usually profits from it.  The cost to build goes up, so their properties appreciate, and usually rents increase with inflation as well.  All the while, your fixed mortgage payments stay the same.

·         Bonds have a fixed value, with the only return on investment coming from the interest or dividend yield.  Real estate will often produce an equal or higher rental yield, while appreciating in value as well.

·         When home buying becomes unaffordable for many, or mortgage avenues dry up, there are more tenants because they cannot afford to buy a home.

·         Our population continues to grow, with the normal first home for younger people being a rental of some kind.

Examine your life goals and your investment objectives.  If you have the time and ability to invest in real estate, particularly rental property, then you may find that a partial re-allocation of your investments from bonds to real estate is for you.

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This entry was posted on Wednesday, September 10th, 2008 at 1:13 pm and is filed under Dean Graziosi, Finance, Investment, Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.