2013 saw an incredible amount of IPOs, including a number of home builders, go public. There are likely to be many more real estate IPOs this year, as well as a slew of new real estate tech start-ups. However, many of those questioning which are the best stock picks to put their cash into right now are focusing on bigger platforms like Zillow and Trulia.
So what factors should investors be looking at when evaluating stocks like this? Who should they be talking to for information? What important elements might be getting overlooked?
Who to Talk to When Evaluating Real Estate Stocks?
First and foremost, it is always wise to consult a financial adviser or an attorney before you make a final decision. However, when investing in a new industry, it makes sense to consult those that are experts in the respective field as well.
Real estate brokers, agents, investors and other industry vendors can all provide invaluable insight into facets of the housing sector. In turn, their insight can reveal a lot about the future direction of companies and their share prices. These parties can provide a sneak peak into the future of the company in question.
However, the end consumer can’t be ignored either. Some investors that have posed these questions in online forums have been chided for getting consumer opinions, but there is perhaps no better indicator of future success. Other industry businesses can be biased and fickle, even though they may have influence over some customers. Yet, it really comes down to the consumer. If they love how they are treated by a company, they will refer it and share their experience. If they aren’t being treated well or are not receiving a great product, it can go the other direction fast.
10 Factors to Consider Before Investing in a Real Estate Stock:
- Outlook: Their plans for the future (possibly predicted by the companies they are acquiring).
- Profitability: Recent revelations about the internal operations of companies like Zillow have shown huge costs to acquire new customers, 8 figure losses, and reliance on a few customers to remain viable.
- Growth: Is a company consistently growing in a predictable and steady manner? Is record setting rapid growth sustainable? What happens if it slows down?
- Management: Who is in control? What are their track records and the direction they’d like to take the company in?
- Technology: How will evolving technology effect this company and its market position?
- Quality: How great is the quality of the product or service being sold?
- Customer Service: How great are customer satisfaction levels and what efforts are being made to improve them?
- Competition: How will competition potentially shape the future of the stock?
- Volatility: How volatile is this investment instrument? What is the risk of loss?
- Other: What else can you invest in that shows more promise?
How Do Stocks Compare to Other Real Estate Investment Options?
Stocks may have a place in many individuals’ portfolios, but when it comes to real estate, many still prefer the safety and higher returns of direct investment. This strategy doesn’t suffer the same exposure to volatility, adds bottom line protection and can cut out many of the costs that eat up returns. Perhaps even more importantly, there is a real estate push that is expected to generate large returns in 2014. You may want to get in now before it is too late.
