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Builder IPOs, the Next Facebook Farce?

Published on Wednesday - January 16, 2013

Are home builder IPOs lining up to be the next Facebook like flop in 2013 and if so is there a better real estate investing solution?

Everyone wants a slice of the real estate investing pie today. Despite a fiscal crisis deal or perhaps because of it, real estate remains the best investment out there. However, success and net returns will vary immensely dependent on investment strategy and vehicles.

The Wall Street Journal predicts 2013 will be a year of home builder IPOs based on the strong housing market, surging new construction figures and a need for yields. However, could many of these issues turn out to be the next Facebook farce or Zillow or Trulia?

Funnily enough Trulia’s stock seems to be performing even worse than Facebook’s these days and Zillow is scrambling to hold on. It’s not an issue with the real estate industry; it’s about business models and timing.

Real estate investing is great but many of those looking to cash in from the sidelines without really understanding the potential minefields ahead could be caught by surprise when their stocks fumble. Public REITs are on dangerous ground and despite attractive recent earnings they are still highly volatile vehicles with no protection, many of which are being built on horribly flawed strategies.

Many of the same pitfalls could lay in wait for those looking at home builder IPOs. Many are surging on speculative building, devastating potential lawsuits could be waiting as faulty building issues emerge and remember that in the last boom home builders were often netting far less than their independent investor counterparts who were busy flipping existing houses.

Those who want great returns, more control over their financial futures and less volatility are much more likely to find what they really want through direct investment in real estate. Whether it is wholesaling, rehabbing or developing a well selected portfolio of rentals direct investment retains many advantages for individual investors and should remain the main focus of those serious about cashing in on the new real estate boom.

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