NEW YORK (CNN/Money) - I'm 54 and I recently invested money for my retirement in real estate. The condo I'm buying won't be ready to sell for two years, but I've put down earnest money in hopes of flipping the unit in two years and making a good profit. Should I stick with this deal or use my money some other way, perhaps investing in an IRA or some other type of savings plan?

-- Kathy Lawicki, Oak Park, Illinois

With the stock market sinking faster than the reputations of many CEOs, I can certainly understand the appeal of real estate. For one thing, there's a certain "tangible" quality to it. You can see it and feel it. It's, well, real. You know it's not an illusion like some of the earnings reports coming out of companies these days.

Adding to this intrinsic appeal is the fact that, over the past couple of years, real estate has had a pretty good run, with housing prices in many cities climbing by double digits. Over longer periods real estate has also done a good job of providing returns in excess of inflation, in the process making many Americans house-rich.

Nonetheless, I would be wary of investing in a condo for retirement, especially if it would represent a significant portion of my retirement assets (by which I mean more than, say, 20 percent). Here's why.

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Although real estate has done well in general, it is extremely location sensitive. A house or apartment building in one neighborhood might appreciate handsomely, but the same structure just a mile away (in some cases even a few blocks away) might appreciate much more slowly or even decline in value. This wouldn't be such a big issue if you owned a diversified group of properties in several cities around the country. But most of us don't have that kind of money to put into real estate.

Another thing to keep in mind are the high costs of investing in real estate. Technology has driven down the various costs involved in buying and selling stocks pretty significantly. Take one of those costs, commissions. Go to an online broker and you can often pay less than $10 a trade.

For a variety of reasons, transaction costs in real estate are still relatively high. You've got appraisals, title searches, mortgage application fees, points, real estate brokerage commissions -- all of which can siphon off a pretty decent slice of your return. If you're planning to hold the property a long time, then you can average these costs over many years. But if you're planning to sell in just two years, however, then you've got to hope you get enough appreciation over a short period to cover these costs and still provide a decent profit.

One more thing: the real estate markets in some areas have been booming so much the last couple of years that some experts worry that we could be in the midst of a bubble not unlike the stock bubble of the late 1990s. Whether that's true or not, I don't know. It's much more difficult to gauge for real estate because there's no national market per se as there is in stocks. Real estate is just a bunch of local markets that are mostly driven by local supply and demand factors.

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Nonetheless, given the appreciation in real estate prices in recent years in many areas and the flight of money into real estate that might otherwise have gone into stocks, I think it's a good possibility that real estate in many hot areas could be overvalued. That doesn't suggest we'll see a crash like the stock market; real estate prices, and especially housing prices, don't tend to fall as quickly as stocks. But we could see a period of below-average appreciation or stagnation that could last for years.

Indeed, after a big runup in house prices on both coasts in the late 1980s and early 1990s, that's exactly what we saw: a cooling off period where home prices fell or languished. In some cases it took several years for prices to regain their previous highs.

If you've done lots of research on the appreciation potential for this condo and, knowing the risks, you want to go ahead, that's fine. Before you proceed, though, you might want to read our recent story, Riding the Real Estate Wave.

But if I were you, I'd be more apt to invest my retirement money in a diversified portfolio of stocks and bonds, although I don't see anything wrong with making real estate stocks, specifically REITs (real estate investment trusts), part of that mix. By investing in REITs, you get the substantial diversification benefit that real estate can add to a portfolio of stocks, but you avoid much of the hassle of investing in actual property. To find out more about opportunities in REITs, check out our story, REITs still have the right stuff.

Walter Updegrave is the author of Investing for the Financially Challenged and can be seen regularly Monday mornings at 8:40 am on CNNfn.