WASHINGTON, D.C.//February 17, 2005//Where does real estate investing in today's sluggish investment marketplace fit in a long-term financial plan?  In the face of continuing sluggishness in the stock market, more and more investors are finding themselves tempted by the lure of real estate. However, there are some basic “rules of the road” for investing in real estate that should be understood by investors who want to avoid getting burned, according to a warning issued today by BHCO Capital Management of Dallas, TX, J.E. Wilson Advisors of Columbia, S.C., and The Foster Group of Des Moines, IA. The three investment advisor firms are members of the Zero Alpha Group (ZAG), a nationwide network of eight fee-only investment advisory firms (www.zeroalphagroup.com) managing a total of more than $3 billion in assets.

Steven M. Lugar, managing director, BHCO Capital Management, Inc., Dallas, TX: "Real estate is an important part of a long-term financial plan, but it is not the ‘silver bullet’ that some people think it is. Most of the people who are tempted to dive into the deep end of the real estate ‘pool’ are individuals who already are flailing around without an effective asset allocation strategy in place. Investors with a long-term strategy will understand that the real estate market is a portion of their portfolio, not an alternative to it."

J.E. Wilson Advisors President James Wilson said: "People who are smarting from investment losses or just generally disappointed by relatively low returns are the first to fail to appreciate the importance of liquidity. You can rebalance your portfolio to take into account changing circumstances. But that’s not so easy when you have most of your money tied up in real estate and the 'bubble' bursts – or, at least, deflates a bit.”

Foster Group Director of Financial Planning Phil Kruzan said: "The good news is that people who want to focus on real estate as part of their investment portfolio have excellent options today, including tax-advantage investing vehicles, REITs and new products, such as managed real estate pools. So, it’s no longer the case that you necessarily have to hold title to, maintain and insure multiple properties in order to ‘own real estate’ for investment purposes.”

ADVICE FOR INVESTORS LOOKING AT REAL ESTATE

1. Don’t bet it all on real estate. Continued weakness in the stock market means that more and more investors are tempted to liquidate some or even all of their investment portfolios in order to pour their savings into such things as vacation homes, farmland, rental apartments and even airport hangars. While real estate is an integral part of a globally diversified financial portfolio, it is not the “magic bullet” to investors frustrated with sluggish stock market returns.
2. Think tax-advantaged investing when it comes to real estate. Since it is very tax inefficient, real estate should be owned within tax deferred accounts. That means you are likely to need some professional assistance in figuring out how to use vehicles such as individual retirement accounts (IRAs) and qualified plans as the foundation for avoiding the tax bite when you purchase real estate, mortgage notes, tax lien certificates, leases and other related income streams.
3. Consider REITs as a substitute for direct property ownership. Not only are REITs a helpful tool in portfolio rebalancing, they can generate much-needed cash flow and, at the moment, are posting good yields. With a total return of 30.4 percent, REITs in 2004 outpaced most other stock market benchmarks for a fifth consecutive year, Based on the NAREIT Composite Index, REIT stocks over the last five years have produced a compound annual total return of 22.5 percent, putting them ahead of the compound annual returns for the S&P 500, the Dow Jones Industrial Average and the Nasdaq. However, you still need to think through the tax efficiency issues of REITs, which is where professional advice will come in handy.
4. Look at managed pool alternatives. Exposure to real estate also can be gained through direct ownership in a managed pool that focuses on real estate. This approach takes no leverage and is broadly diversified, thus it has a very low standard deviation (comparable to one-year treasury bills). Additionally, owning real estate through a managed pool gives financial professionals a higher comfort level because they can get a clear sense of the credit and administrative processes behind the investment, which may be particularly important in a “down” market for real estate.

For more information about ZAG members and their approach to investing, visit http://www.zeroalphagroup.com on the Web.

ABOUT THE THREE FIRMS

BHCO Capital Management, Inc., Dallas, TX. - BHCO Capital Management focuses on maximizing after-tax returns, while serving as a fee-only financial planning and investment advisory firm. With eleven CPAs on staff, they specialize in estate planning as well as tax-efficient investing for high net-worth individuals and business owners. BHCO Capital Management is on the Web at www.bhcocapital.com.

The Foster Group, Inc., West Des Moines, IA. - The Foster Group provides fee-only independent investment management and comprehensive financial expertise, utilizing asset-class investing strategies. The Group provides investment, retirement, and estate planning, as well as charitable giving. The Foster Group is on the Web at www.fostergrp.com.

J.E. Wilson Advisors LLC, Columbia, S.C. - J.E. Wilson was founded in 1982 as the first fee-only financial advisory firm in South Carolina. The firm provides objective, long-term private wealth management solutions to investors, with a special focus on the wealth planning and management needs of physicians and their families, using the firm's Integrated Economic Solution. ®J.E. Wilson Advisors is on the Web at www.jewilson.com.

ABOUT THE ZERO ALPHA GROUP

Founded in 1995, the Zero Alpha Group, which is not an investment advisory firm itself, was created to serve as a nationwide network for eight independent investment advisory firms that manage a total of more than $3.5 billion in assets. Members of the Group are committed to providing objective, long-term private wealth management solutions to investors, focusing on asset allocation and a structured, quantitative approach to investing. The eight firms in the Zero Alpha Group network share a common philosophy about investing and client service - a commitment to passive, tax-managed investment strategies while providing an independent financial planning solution for investors. Visit ZAG online at http://www.zeroalphagroup.com.

CONTACT: Patrick Mitchell, (703) 276-3266, or pmitchell@hastingsgroup.com.