Real Estate Bets in Shaky Times

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Advocating a more global approach to real estate investment allocation, Kuziw says, "Clients probably miss out on a lot of opportunities by not looking at exposure in Europe, Western Europe, and industrial Asia that are probably in earlier stages of real estate expansion." While the values of some foreign properties are under pressure, they're still a smart component of a portfolio for their low correlation to macroeconomic forces, he says.

For risk takers and wealthy clients, Lenox prefers exposure to core real estate holdings such as office buildings, retail properties, and apartment houses. He selects properties with a view to each client's appetite for risk, sticking to cash-only purchases for the more conservative and using leverage for the more adventurous. To own larger properties with the greater potential for capital appreciation, investors need to be comfortable with using a combination of cash and debt to buy them, Kuziw says.

He looks for fairly a stable NAV and a quarterly distribution of between 5% and 6.5%. And, depending on how they're managed, every two to three years they might offer an extra dividend if they sold a property that had appreciated and reinvested the profit in another property. "We look at them almost like a private equity play, [where you're] raising a certain amount of money and then investing in properties like office buildings, looking for capital appreciation," he says.

3. Use Your IRA

There's also money to be saved if you buy real estate as part of your IRA portfolio, which can be either tax-deferred or have its taxes prepaid like a Roth IRA. Keep in mind, though, that the properties aren't shielded from the slowdown in the real estate market.

While most IRA custodians tend to focus on stocks and bonds, Entrust Northeast, in Verona, N.J., which administers self-directed retirement accounts, allows for a wider range of investments, including first and second mortgages. "People usually come to us having some idea of what they're interested in investing in before they get here," says Jaime Raskulinecz, chief executive of Entrust Northeast, one of 30 franchises nationwide of Entrust Group, which doesn't recommend or sell anything.

It costs clients $50 to open a new account and, as long as someone makes a deposit in cash, there are no fees until the client directs Entrust to make an investment on behalf of the account. Each transaction costs $95 and clients pay either $250 per asset per year or a certain percentage of their account value, starting at 0.0085%.

For example, when a client opts to buy a condominium, Entrust serves as the conduit for the transaction. Rather than the client owning the property, it's owned by and gets deeded to the IRA, much the way stocks are held in an account. As with traditional IRAs, all gains on sales in that account are tax-deferred as long as the owner is at least 59 and a half years old when making a withdrawal. Properties held in Roth IRAs, where taxes are prepaid, can be sold with no minimum time limit as long as the IRA has been open and funded for at least five years.

4. Vacation Homes

The most obvious real estate investment is a vacation home, although people may not think of them that way. For retirees who are seeking or open to a change in lifestyle, relatively inexpensive opportunities exist outside the U.S., particularly in parts of South and Central America.

Panama has gained in popularity, mainly because well-known U.S. real estate developers such as Donald Trump are building sophisticated luxury high-rises there, says Brent Lipschultz, a principal in the Personal Wealth Advisor Practice of Eisner. "A lot of investors see these big players coming in there and feel more comfortable with their own investment," he says.

Costa Rica also has a growing population of U.S. retirees, mainly because of the economic environment and its attraction for tourists. The stable political environment in Panama and Costa Rica is a key reason for investors' interest.