Real estate profits have eased, but it's a good time to buy a home

HOME sales are soaring. Real estate syndicates are all the rage. If you have a nagging feeling you're missing something in real estate investment, you could be right.

But remember, these are the 1980s, not the boomy days of the '70s. There are more ways to make a real estate play, but the spectacular appreciation of the last decade is past.

Inflation, the locomotive pulling prices up, has slowed. The average price of a new home in December was $91,000, showing a rise in price of only 6.6 percent over 1982, keeping just ahead of inflation.

''Single-family homes and condominiums are likely to keep pace with inflation ,'' says Leanne Lachman, president of Real Estate Research Corporation. ''But if inflation rises dramatically, appreciation probably won't keep up.'' With $90, 000-plus sales tags and high interest rates already taking millions of potential home buyers out of the picture, the market would not bear steep price increases.

Nonetheless, buying a home is the first real estate investment you should make, if only to reap the tax benefits from deducting mortgage interest and property taxes, personal finance advisers say.

And it may sound cliche, but this is the time to buy. ''It's likely interest rates will rise over the next three years,'' says Ms. Lachman of the Chicago-based national consulting firm. ''But don't buy the biggest house you can afford. Buy the best size for your needs.'' Because of the affordability problem, ''The larger homes are appreciating slower than the smaller ones,'' she notes.

If you already have a home, there are plenty of other options. As an investment, a second home is not recommended. There are better returns available elsewhere.

Ms. Lachman lists her real estate investment preferences in order of safety:

1. Government National Mortgage Association (Ginnie Mae) securities.

2. Real estate investment trusts (REITs).

3. Stock in home-building companies.

4. Syndicates or limited partnerships.

5. Apartment or retail property.

The top three on her list offer income but few tax benefits. They're probably ''better for the older person. The younger person, in peak earning years, is looking for tax advantages,'' says Christopher P. Jones, president of Multi-Service Financial Planning.

Ginnie Maes: A favorite with institutional investors for the last five years, they are now widely available to individuals. When you buy Ginnie Mae shares, you are buying into a pool of mortgages. The principal and interest are guaranteed by the Government National Mortgage Association.

Returns on Ginnie Maes are slightly higher than bonds, Ms. Lachman says. ''In fact, they work like a bond but they have real estate behind them.''

There are some risks if you buy the higher-yield Ginnie Mae bonds that sell above face value, as Jay Rabinowitz, vice-president of Merrill Lynch's financial planning department, points out:

''Unlike a bond, if interest rates drop and there is a rush among homeowners to refinance, then the notes may come due sooner than you expect. You may get back only the face value of the certificate.'' You do not run that risk with discounted Ginnie Maes with lower yields. The minimum face value is $25,000 and yields currently fall in the 11 to 14 percent range.

REITs: Ms. Lachman is bullish on REITs. ''They are very, very solid. In most cases, they're undervalued in the stock market.'' REITs are publicly held companies, and are similar to mutual funds. Most trusts invest in either property or mortgages and distribute income as dividends.

REITs took a severe tumble in the mid-'70s recession but in the last four or five years have regained respectability.

Another plus, says Ms. Lachman, is that REITs are often taken private and the shares are bought back from the outside investors, usually at a nice profit. If you buy into a REIT now, she says, ''you stand a reasonably good chance of its being purchased to go private.''

Home-building companies: The third income-earning ''real estate'' option is a straight stock play. A close look at the company and its markets is a must. U.S. Home Corporation, the largest single-family home builder in the nation, is struggling in the overbuilt Houston area. A recent issue of Value Line Investment Survey mentions Centex Corporation and Ryland Group as timely picks.

Limited partnerships: In the past two years the popularity of syndicates or limited partnerships has skyrocketed. The money invested in public syndicates jumped from $2.7 billion in 1982 to $4.7 billion last year. An estimated $20 billion to $25 billion has gone into private syndicates.

In a private limited partnership, a small number of investors will pool their funds. The general partner will buy and manage the property and assume any liabilities beyond the limited partners' investment. The payoff comes when you sell, and at tax time.

''Over a 3- to 5-year period you might invest $10,000 a year,'' says Mr. Jones. ''Your tax benefit could be $23,000 the first year.'' But the Internal Revenue Service is watching syndicates closely. Investors should be wary if tax write-offs stray over twice the amount of their investment.

Public limited partnerships tend to have lower minimums ($5,000 to $10,000), reduced tax benefits, and less risk. ''They usually require just a one-time investment of say, $5,000. And the deductions are gradual: perhaps $500 a year, '' Mr. Jones says.

Limited partnerships are ''a wonderful thing,'' says Ms. Lachman, but the money they're attracting also brings out fly-by-nighters.

''You have got to do your homework on the track record of the company and the individual properties involved,'' she warns.

With so much competition now, there is a temptation to overbid on properties, thus jacking up the tax write-offs for investors. If the initial price is too high, the partnership runs the risk of selling the property for less than it paid for it. If so, the IRS may come knocking for a recapture payment.

Where are syndicates putting their money?

Primarily in residential middle-income rental property. ''There is tremendous demand for reasonably priced ($400 to 700 a month) garden apartments,'' says Jones.

Apartments and retail property: Since most private syndicates are focusing on large apartments complexes, Ms. Lachman sees an opening for investors in buildings with less than 25 units.

Her one caution: ''Real estate is management-intensive. It must be overseen on a day-to-day basis. People don't grasp how serious that is.'' If you don't have the time to manage it yourself, she recommends getting a willing partner or partners.

She also likes the looks of small retail storefronts. ''Retail supplies are in good balance now. They can be very attractive, but you must watch the tenants' business carefully,'' she advises.