Real Estate in Its Purest Form

Residential real estate prices may be falling, but the cost of land is going up and can be a solid investment.

A few weeks ago I drove from Maryland to Florida and back. On long trips, I usually turn onto some two-lane state and county highways. This time, I had a mission: to watch for land on the market and get a sense of whether pure unimproved real estate is a plausible investment.

A few people who invest directly in real estate own all or part of neighborhood retail strips that house beauty salons, pizza parlors and the like. Most direct investors buy condominiums or houses. With houses or apartments the risk is big that you'll constantly be searching for tenants to keep the units filled and spend more time on the property than you want, unless you hire a property-management company for around 8% of the rent. Moreover, although some distressed investors may be trying to unload their properties, prices, based on current rents as a percentage of the gross cash flow, are still high in many places.

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Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.