There will still be places to run for shelter, including new ones

Now that almost all real estate investments that were hyped as ``tax shelters'' are not going to be legal anymore, investors are wondering where to turn. There are still plenty of places to look, including some fairly new ones, says M. Leanne Lachman, president of the Real Estate Research Corporation in Chicago.

One of the newest is called a master limited partnership. ``These have been around for a while in oil and gas,'' Ms. Lachman says. ``They've only recently been used for real estate.''

Unlike a typical limited partnership, where investors who want to get out have to sell their interest to or through the general partners, master limited partnership shares are bought and sold on the major stock markets, like a share of company stock.

The Pillbsury Company, for instance, recently sold shares in 128 existing Burger King properties and leases, Lachman notes. Because these restaurants are already in operation, the income stream is pretty much assured.

Since the master limited partnership concept is fairly new in real estate, ``it's critically important to go with a major property manager who has 10 to 15 years' experience,'' she says. ``If you're putting in $5,000 ot $10,000, you can't go around the country and look at all the properties. Management experience is important, not just someone who buys and sells every five years. They have to have had experience actually managing property.''

``Up to now the tax shelter aspect sort of let people off the hook about careful analysis,'' Lachman adds. ``Tax breaks won't help you there anymore.''

Another investment that should do even better under tax reform is the real estate investment trust, or REIT. Shares in these are also bought and sold on stock exhanges. REITs receive most of their income from passive real estate investments, and most of this income is distributed annually to shareholders.

``REITs look very good now,'' she says. ``The returns have not been very good for the last couple of years, however,'' because of too many REITs on the market and low overall returns on real estate. The total return on the average REIT was 5.3 percent in 1985, Lachman figures. A more respectable return should be in the 8 to 10 percent range.

The tax law will make it easier for an entity to qualify as a REIT and, if certain conditions are satisfied, let the REIT avoid paying taxes on income distributed to shareholders. In general, the REIT will be taxed only on retained and undistributed income. The law also gives REITs more flexibility in buying and selling property and in making improvements.

The best thing to do in this market, Lachman says, is to buy into an established REIT with several years of income. Also, check carefully where the REIT's properties are.

``I would ignore apartments in the Southwest,'' she advises. ``Established shopping centers are good. Avoid hotels. They're terribly overbuilt.''

``Established, fully leased office buildings are attractive. Apartments in the North and West would be fine.''

Established, enclosed shopping malls are usually good, but ``this is not true of strip malls. There are just too many of them around.''

Whatever type of real estate investment you choose, the tax law makes it even more important to look carefully at the properties and the company managing them.

``You've always got to look at the properties,'' Lachman stresses. ``So many people get into limited partnerships without understanding how the properties work. Without tax benefits, you have to be looking at the property in much more detail. Find out if it will produce income or not.''