A statement of my real estate investment strategy as copied from an email to my wife and sister in law. Comments, thoughts and corrections are welcome.

Guys,

I read that Wall Street Journal article that J. sent. http://online.wsj.com/article_email/SB116959562212885601-lMyQjAxMDE3NjI5NTUyOTU1Wj.html also attached as a text file.

It does present a negative side to real estate investing but that is not all bad. We need to remember that real estate, like any investment, is inherently risky. The Embleys were fortunate to make some $$ on our last investment but my Dad lost his shirt in the late 80s on real estate. It is definitely not a sure thing.

However, to me, while the return rate may be just ahead of inflation, having a tenant pay rent, makes all of the difference in the world. My feeling is that if the rent covers the mortgage and a little extra to cover maintenance, you basically get a free house at the end of the mortage. A house that you can sell in a few or alot of years and make back your down payment and closing costs + a ton of $$.

As comparison, my friend B.'s father, buys and rents crappy houses in Trenton. He buys them dirt cheap, fixes them up to a barely functioning level and rents them. B. says that his Dad will not buy a place that he cannot rent for 10 times his monthly payment! That is an extreme example but shows that it can be done.

Also, my view is that the person hours spent managing the property should not be accounted for. Yeah, it is sometimes a pain and stressful to deal with a tenant or get a house problem fixed but is is a productive use of one's personal time.

Besides, to me, there is something comforting about having our $$ in a house rather than stocks. I can see a house, touch a house and understand a house. Can't say the same, at least for my limited brain, of the stock market. If worst came to worst, I could always live in the rental property, at least until the bank reposseses it.

The key to this strategy is really the rent. Figure your costs any way that you want (factor in the closing costs, factor in the down payment, factor in the hourly cost of yor time for managing the property, whatever) but just make sure that you can rent the property for enough each month to cover your determined cost.

Wow, I am spent from this rant. Didn't mean to be preachy but I needed to consolidate our investment strategy in light of that one sided article.
-end.

Article (sited but reprinted w/o permission):
GETTING GOING By JONATHAN CLEMENTS
RELATED INDUSTRIES• Real Estate Why You Should Think TwiceAbout Investing in Real EstateJanuary 24, 2007; Page D1Real estate may be getting cheaper. But homes are always expensive.
Like any good knee-jerk contrarian, my enthusiasm for the property market grows as the bad news piles up. Only last week, the Federal Reserve's "beige book" report on regional economic conditions noted that housing markets continue to soften, with sluggish home sales and falling prices in some areas.
So is it time to buy the vacation home you've always wanted? Should you trade up to a larger place? It is tempting. But if your sole goal is making money, it's mighty hard to justify.
• Counting costs. When analyzing the payoff from homeownership, it is critical to remember two key points. First, home-price appreciation has historically been modest and certainly nothing like the heady gains enjoyed earlier this decade.
According to home-finance corporation Freddie Mac, U.S. house prices climbed 6.2% a year over the past 30 years, versus 4.3% for inflation. Beating inflation by 1.9 percentage points a year is (pun intended) nothing to write home about. To make matters worse, after the current decade's blistering performance, even slimmer returns may lie ahead.
Instead, as you toy with whether to trade up to a larger place or purchase a second home, your real focus should be the dividend. This dividend is the rent you receive or, if you live in the house yourself, the "imputed rent" -- the rent you would have paid if you didn't own the place. This rent might be worth 7% or 8% of a home's value each year, though the figure will vary depending on the location.
That brings us to the second key point. Homeownership is horribly expensive. In fact, it's comparable to owning a mutual fund that not only charges 3% or so in annual expenses but also levies a 5% or 6% back-end sales charge.
The back-end sales charge is the commission you will likely pay to sell your home, while the 3% annual expenses reflect the triple hit from property taxes, homeowner's insurance and maintenance costs.
Your annual expenses would be even higher if you add in home improvements and monthly mortgage costs. But arguably, neither should be included: Home improvements are optional expenditures, while a mortgage is a borrowing cost, not a cost inherent in homeownership.
• Collecting rent. What's the implication of all this? If you subtract the costs of homeownership from your price appreciation, you are unlikely to keep pace with inflation -- and you might end up under water.
True, if you have a mortgage, you could enjoy leveraged gains. But leverage can also bite. Indeed, from current levels, price gains may fall short of the 6.4% interest rate now charged by a 30-year fixed-rate mortgage. What about the mortgage-tax deduction? Even if you figure in the tax savings, the leverage may still not work in your favor.
All that said, this could be a wonderful time to invest in real estate -- and, no, I am not making a market prediction. Frankly, it isn't that important whether property prices climb at 4% or 6% a year.
Rather, what really matters is the long-run dividend. As savvy landlords will tell you, the key to a successful investment property is finding a place that will attract good tenants who deliver a steady stream of rental income.
But what if you have no desire to be a landlord? What if, instead, you're thinking of trading up to a larger house or buying a vacation home for your own use?
In that case, all bets are off. You won't collect any rental income and, after all costs, you probably won't make much on the price appreciation.
That doesn't mean you shouldn't buy that charming country cottage, assuming you have the financial wherewithal and you will get a lot of pleasure from the place. And clearly, it's better to pay 2007's prices than 2005's. But don't kid yourself: You aren't investing in real estate -- you're consuming it.
MOREABOUT THE AUTHOR
Jonathan Clements has written The Wall Street Journal's Getting Going personal-finance column since October 1994. Born in London, Jonathan is a graduate of Emmanuel College, Cambridge University, where he edited the student newspaper. He was a writer and researcher for Euromoney magazine in London before moving to the New York area in 1986. Prior to joining the Journal in January 1990, he covered mutual funds for Forbes magazine. Jonathan is the author of "You've Lost It, Now What? How to Beat the Bear Market and Still Retire on Time," published in 2003. His earlier books include "25 Myths You've Got to Avoid -- If You Want to Manage Your Money Right" and "Funding Your Future: The Only Guide to Mutual Funds You'll Ever Need." He has two children and lives in Metuchen, N.J.