Back in the 60s, Congress created REITs: Real Estate Investment Trusts—so that the —average American could reap the benefits of income earning property.
REITs allow individuals to invest in large scale income producing real estate, without the hassle and overhead of going out, buying, and managing property.
REITs offer investors multiple benefits: Diversification, Dividends, Liquidity, and Transparency.
While operating under the same rules and regulations as other public companies REITs have, over the long term outperformed the S&P 500, Dow Jones Industrials and NASDAQ Composite, while also showing little correlation to the performance of the broader market.
There are two kinds of REITs:
Equity REITs derive their income from rent on real properties, usually things like malls, industrial facilities, apartment complexes, hotels, hospitals, and more.
Mortgage REITs derive their income from interest earned on mortgages or mortgage securities.
There's some criteria a REIT must meet to qualify—modeled after mutual funds, and recognized as a corporation, it must have a minimum of 100 shareholders, be managed by a board of directors or trustees, invest 75% of its total assets in real estate, and derive at least 75% of its gross income from rents on real property, interest on mortgages financing real property or from sales of real estate.
Should I buy REITs?
I did some research, asked my investing mentor, and checked the performance of my own REITs. I'll let you decide for yourself.
Here's a take from my investing mentor (who opts to remain anonymous).
To start I wanted a REIT in my portfolio some years back to diversify. This was maybe 6 years ago when REITs were booming which they did through '16. My broker recommended Cole, a nontraded REIT. Cole held stand alone commercial real estate occupied by national chains like Walgreens. Their occupancy rate was high and the renter assumed most or all of the maintenance. It was golden. I received a 6.5 % dividend till it went public and I made a healthy gain on its sale. I immediately ploughed all my earnings into another Cole REIT. This time there were problems. Cole allowed themselves to be acquired by American Realty which immediately had a compensation scandal.
Cole product sales dwindled immediately nationally as broker confidence in them diminished. Then it looked like Cole was going to be taken over by Apollo Global, a private equity firm at a fraction of their worth. That's when I decided to bail. It was hard getting a redemption from Cole too. They were resistant. There was a minimal redemption penalty as I had held the REIT for some time. The ample dividend it paid more than compensated. With both REITs I walked away with a 50% profit over approximately 4 years. It was a frightening experience. Nontraded REITs are hard to redeem quickly.
Finally, I now hold a tradable REIT fund through my NY Life variable annuity but it's only a small fraction of my portfolio. It's been down as much as 9%. It is rated high risk.
Projections for REITs have been mixed. Some segments have been slated to do well like commercial office space due to the uptick in the economy, and Internet sales storage facilities for companies like Amazon. But I just read an article claiming commercial property overall is now overpriced, and the 7 year REIT rally is ending. Investors have not embraced REITs since they got a separate S&P sector listing. REITs pay around a 4% dividend and are seen as a haven for investors when they are risk averse. This is not the case now, which is why REITs are down.
In an article for Forbes, Brett Owens claims REITs are the sector to take off for 2017. He took pains to bust a common REIT myth that they fall as interest rates rise, and even provides data that proves that REITs actually perform better as rates rise. He also suggest 5 REITs to buy, 3 of which I own personally—Public Storage (PSA), Simon Property Group Inc., (SPG), and Ventas Inc., (VTR).
My own REIT portfolio has yielded 13.2% to date.
REITs are a great way to diversify your portfolio, but do your due diligence before deciding to pull the trigger for yourself!
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Airbnb offers an affordable option for people looking to be more comfortable as they travel.
However, there are downsides to staying in a host's home rather than a hotel. Whereas hotels are designed for constant streams of visitors and often have furniture built to last, at an Airbnb, you may be staying on old or cheap furniture that a host is using in order to maximize their profits.
And while most reputable hotels will have regular room inspections from staff to check for any wear and tear, Airbnb damage disputes are oftentimes he said, she said situations. If you are in an Airbnb and something breaks, there are a few steps you should take in order to ensure that you are not on the hook for damages out of your control.
If you're keeping tabs on the art and tech worlds, you've probably been hearing whispers about "NFTs" for the past month. Just over the past week they've entered the mainstream lexicon.
Twitter founder Jack Dorsey made the news for selling his first ever tweet. The app has been teasing paid subscription models and newsletter-like features, but tweets for sale is "the next frontier."
just setting up my twttr— jack (@jack)1142974214.0
The 2006 tweet went up for auction as an NFT, and the current bid is $2.5 Million. But what does it mean to own that? Why would anyone want to? And what even is an NFT?
Long gone are the days when the majority of Americans dreamed about owning a home with a white picket fence.
The traditional American Dream may be on its deathbed, but that doesn't mean a core component of the vision can't survive. It simply takes a diverse perspective. People can still believe they can attain their own vision of success in society with hard work, knowledge, and risk-taking. Investing in today's American Dream may literally mean investing money in our modern economy, starting with our infrastructure.
Real estate investing in particular is a lucrative method that can boost income and secure a better financial future for many. There's always risk involved, but the payoffs can far outweigh the uncertainty. Selecting solid financial investments is about confidence and competence. If you're looking for some advice on this kind of investment, here are a few savvy tips for new real estate investors.
Stick To a Specific Strategy or Niche
Real estate is a challenging sphere of the business world, one that requires several key skills: groundwork knowledge, networking, perseverance, and organization. True knowledge of the real estate market will come with time and experience, but it's a smart idea to select one area of the market and stick to it. This is the best way to attain in-depth familiarity with your specific niche.
First, choose a geographical area close by and then a niche strategy within it, such as house flips, rental rehabs, or residential or commercial properties. By doing so, you can become aware of current inner working conditions in the market and you'll have a better idea of how these trends may change in the future.
Be Vigilant About Viable Financing Options
While it takes money to make money, you don't have to use all your own money. A common misconception about real estate investing is that you must be wealthy to start off. This isn't straight fact, however. A majority of people can test the waters of real estate investing without a lot of initial cash in their pocket.
Aside from traditional financing options from banks and institutions, private lending options can be worthy solutions. Hard money lenders are popular, reasonable choices, and they tend to have fewer qualification requirements upfront. However, be sure to strategically choose a hard money lender to find the best possible fit.
Master the Art of Finding Good Deals
There may be hundreds of thousands of available properties for sale on the current market, but the bulk of them will never amount to the final money-making result you desire. Another great tip for new real estate investors is to use good math to estimate profit. Taking risks is part of the process, but you have the ability to analyze properties and use networking sources to find the greatest deal. You can't win every deal, but you can steadily work towards a thriving financial future.