REITS Vs Real Estate

‘Investing does not have to be complicated but it seems many of us want to make it so.’

I read an article recently where the author tried to make the point that investing in REITs (Real Estate Investment Trusts)  was better than investing in Real Estate. I didn’t buy all of his arguments and believe his conclusions were flawed. Just so we are clear I own many REITs and I have owned and still own rental properties.

Which is better ? Investing in REITs or Real Estate.  The answer – There is no simple answer. I love REITs. They have many advantages over Real Estate properties and they have many advantages over general equity stocks. While I will not discuss all the advantages and disadvantages of REITs here (Look for a future article – Why I love REITs) I will point out the number one advantage of owning a REIT – Its higher yield. Remember your two best friends? That’s right Mr. Time and Mr. Yield. Together you will probably find no better friends, at least in the investing world.

But let’s compare his arguments for REITs with that of Real Estate:

REITs are less risky, better diversified, liquid and cost-efficient

Less risky ? That is very subjective, Real Estate is not any more of a risk than REITs, in fact I would argue that Real Estate is in fact less risky of an investment when done by someone who knows what they are doing. Better Diversified? Again, this one just not make sense, but I believe I see what he is trying to say but comparing a basket of stocks with a real estate investment is comparing apples to oranges. He also states that unless you have a Hundred million dollars you cannot possibly be well diversified – I believe he pulled the figure out of a hat somewhere! Besides I know people that own dozens of properties in many locations and in some cases differing types of properties so again I do not agree. Cost efficient ? I don’t understand his argument here so I really don’t know how to respond except – ???? The one part of this statement I do agree with is that of Liquidity. It is generally much easier to buy and sell REITs than Real Estate.

REITs have historically outperformed private real estate

Pure Hogwash ! In fact in his supporting paragraph he compares the performance of REITS  to the S&P 500, and Private Real Estate Funds, not to private real estate investors. Big difference here. I have personally known private investors that have made over 100% returns on real estate deals.

REITs provide REAL passive income

Well, okay. I’ll buy that unless you pay a property manager to manage your properties you will have to put in more work, but real estate investing is certainly no 9-5 job ! But this even tries to make an argument that you will end having to take on a second job. Totally ridiculous statement in my opinion.

REITs are not necessarily more volatile

Again he tries to compare REITs with Private Real Estate without even comparing the two. He uses various metrics to point out that REITs are not more volatile that Private Real Estate but does not show any examples of Private Real Estate volatility. The thing is I do agree that REITs are not that volatile but neither is real estate. Yes, real estate does fluctuate but very few of us look up the expected price of our home or real estate investment very often. The truth is though your home more than likely will not drop in value over night because the FED has stated they may raise interest rates or because of tensions with some foreign country, or just because the whole stock market is in a general decline that day. I have no hard core proof to present, but my own experience tells me that Real Estate for the most part holds its value very well.
Then of course we have his conclusion:

My conclusion is that if you are not a professional real estate investor, forget any form of private real estate investing including crowdfunding, limited partnerships and direct ownership (excludes home, and other exceptions). And even if you are a professional investor, you might still be better off investing in REITs.

Obviously there exist many exceptions to this conclusion, and I am sure that private real estate makes more sense for one investor than another. But REITs have so many advantages over private real estate that it is difficult to argue against it. REITs are less risky, better diversified and liquid, but they have still managed to outperform private benchmarks in the past.

Read his “conclusion” carefully. It just does not make sense. Only professional real estate investors should invest in private real estate? Really? Does one have to be born into the Professional Real Estate Investing profession?

And then – Even if you are a professional real estate investor you might be better off investing in REITs?  Then he repeats his unsubstantiated arguments again to summarize his conclusion.

My Take.

I personally invest in both REITs and in Investment Properties. Yes, real estate takes more time and effort and yes, real estate can be difficult to sell sometimes, with these I agree. But no, Real Estate is not any more volatile than REITs and it is not only for “Real Estate Professionals”.

REITs are great investments also. Many of my REIT investments make great returns for me and I enjoy collecting yields ranging from 5% to 10%. Some of my current REITs are APTS, VTR, WPC, O, CCP, OHI and I am happy to own them, but they are very different than owning actual investment properties. I have generally achieved much greater returns investing in real estate than I ever could investing in only  REITs.

My advice.

If you are up to it and in a financial position to do so I recommend not choosing between the two but investing in both. Then you can experience the best of both worlds, more diversity in your investments, higher returns and still maintain some liquidity for your needs.

Investing does not have to be complicated but it seems many of us want to make it so.

Your thoughts and comments are welcome !

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Sell or Rent Your Property ?

“He is now earning $10,332 per year or $861 per month in additional income !”

This was an actual question from my son seeking my advice on what he should do. He is in the Navy and has to move to Oklahoma for his next duty assignment. The Navy in Oklahoma ? He is actually being assigned to a Joint Services assignment where he will work on an Air Force Base. He owns his house at his present assignment and has determined that can rent it for a small profit of $265 per month. If he were to sell it he should realize a gain of about $65,000 when all is said and done.  Should he rent it or should he just sell it? There is a ton of variables to consider but in this particular case this was my advice.

I advised him to sell the property. He knows that I am not adverse to rental property, in fact I have owned many rental properties and have made great returns from them but in this case I just had to say sell. My reasoning was based on several factors.

The first thing to consider is the shear distance between where his property is located and where he will be stationed. It is hard enough to manage rental property but just like relationships long distance rentals are a bad idea. Even with a good property manager there is still a need for your participation in the property. Property managers typically charge 10% of the rent collected which also drains your positive cash flow – for example if you rented your home for $2,500 a month the property manager takes $250 per month in fees. This is expensive ! You also need to factor in property taxes, Insurance, maintenance costs , tenants not paying rent or leaving after the lease and having an empty home that collects no rent at all. Even minor events can become expensive when you have to rely on others to do the work for you.

If he choose to sell the property then he will net about $65,000 after closing costs, Real Estate agent commissions and taxes …….. and of course there are several things he could do with that ………. use it as a down payment on a new home, pay off other debts but I advised him to invest it. Keeping in theme with that of a Dividend Income Investor one of my priories is when you earn money or come into money from what ever source the first thing you should think about is putting that money to work earning income for you.If you spend the money it cannot earn money for you. If you spend it you can never have it back. Sure, there are lots of circumstances where spending money can save you money, say paying off a high interest loan for example but when you invest that money so that it produces an income for you it does that forever! In fact if you do it correctly it will not only produce income for you for the rest of your life (and your children’s lives should you choose) it will actually grow and make sure you get constant raises in your income.

So if he takes the $65,000 and invests it in Dividend Stocks earning 9% per year ( My own portfolios exceed this yield) then it will immediately produce $5,850 in the first year which equals about $487 per month in income! He will be in Oklahoma for a total of six years. So if he lets the investment t continue to compound at the end of 6 years his account will have a value of almost $111,000 as the original $65,000 would have paid him $45,874 in Dividends (Income) over that six years.

He is now earning $10,332 per year or $861 per month in additional income ! All from not spending the $65,000 !  At this point you could withdraw $500 a month for expenses and still have your investment continue to grow and best of all you still have the cash because you did not spend it.

Rule # 1 – Never, Never spend money you do not have to !

Will he take my advice ? I doubt it as young people seem to not be able to see tomorrow for all the clutter today but I really hope he does because it will make his life easier later for doing just a little bit of planning now. Regardless of what he does though if you find yourself in a similar situation please stop and consider what I have laid out here for you.

 

Any thoughts or comments? We would love to hear them!

Whitestone REIT Worth a Look

“If you are a Dividend Income Investor or looking to beef up your portfolios yield this is definitely a stock you may just want to take a closer look at.”

I had not planned on writing an article about Whitestone REIT (WSR) today but the market was screaming at me to do so.

Shopping Center and Mall REITS have taken a beating the past couple of weeks. The broad sell off was triggered by the poor income and revenue showings of many retailers stocks. So like investors tend to do they over react. They sell off anything remotely connected and in the process create bargains. Whitestone’s share price  also declined because many investors are unhappy that they issued 7 million shares to pay for recent acquisitions. Perhaps these investors did not bother to read their Business Strategy clearly posted on their Web Site ! Here is what it states :

Our primary business objective is to increase shareholder value by acquiring, owning and operating Community Centered Properties™. The key elements of our strategy include:

Strategically Acquiring Properties

We seek to expand our geographic diversification by strategically acquiring commercial properties in high-growth markets.  Our acquisition targets are located in densely populated, culturally diverse neighborhoods, primarily in and around Phoenix, Chicago, Dallas, San Antonio and Houston, five of the top 15 markets in the USA in terms of population growth.  We may also pursue opportunities in other Southwestern and Western regions that are consistent with our Community Centered Property strategy.We believe that during the next several years there will be excellent opportunities in our target markets to acquire quality properties directly from owners, at historically attractive prices. Many of these assets may benefit from our management team’s experience in turning around financially distressed properties, portfolios and companies.

Redeveloping and Re-tenanting Existing Properties

We “turn around” properties and seek to add value through renovating and re-tenanting our properties to create Whitestone-branded Community Centered Properties™. We seek to accomplish this by (1) stabilizing occupancy, with per property occupancy goals of 90% or higher; (2) adding leasable square footage to existing structures; (3) developing and building on excess land; (4) upgrading and renovating existing structures; and (5) investing significant effort in recruiting tenants whose goods and services meet the needs of the surrounding neighborhood.

Recycling Capital for Greater Returns

We seek to continually upgrade our portfolio by opportunistically selling properties that do not have the potential to meet our Community Centered Property strategy and redeploying the sale proceeds into properties that better fit our strategy. Some of our properties which were acquired prior to the tenure of our current management team may not fit our Community Centered Property strategy, and we may look for opportunities to dispose of these properties as we continue to execute our strategy

It sure seems clear to me !

Some property pictures of recent acquisitions

 

Whitestone REIT which was founded in 1998 now owns over 70 properties which are primarily located in Texas and Arizona.  Some would see the lack of geographical diversity as a negative but because these are growing markets a and Whitestone targets the more upscale neighborhoods ( average income exceeds $75 thousand a year) and because they are concentrated I believe that it gives them an advantage of fully understanding  their markets.

I personally already owned a sizable position in Whitestone REIT but yesterday added an additional 300 shares @ $10.98 per share. That was at a whopping 10.38% yield that I could not just pass up on a stock that I believed in.  Since the dividend has remained at $1.14 per share since 2012 but with a current yield over 10% who needs dividend growth? After all – One in the hand equals two in the bush – right?

If you are a Dividend Income Investor or looking to beef up your portfolios yield this is definitely a stock you may just want to take a closer look at.  Retail might be struggling and going through some changes but its far from dead and Whitestone REIT will provide income for a good many more years.

For more information please visit the Whitestone REIT website.

Read previous article: Whitestone REIT Acquiring two Retail Centers

I hope you have  enjoyed this article, if so  please consider following me and as always your thoughts and comments are encouraged !

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare Trust of America Acquires Duke’s Medical Office Portfolio

“This transaction makes Healthcare Trust of America the largest Medical Office building owner “

Healthcare Trust of America (HTA) has Acquired Duke Realty’s (DRE) Medical Office building portfolio for 2.7 Billion. An all cash transaction.

This transaction makes Healthcare Trust of America the largest Medical Office building owner in America now exceeding Ventas (VTR).

Healthcare trust of America is a REIT  and has a current yield of 3.76%.

For More Information visit the Healthcare Trust of America Website.

 

 

 

Whitestone REIT Acquiring two Retail Centers

“Whitestone REIT (WSR) is acquiring two upscale retail centers in Texas”

Whitestone REIT (WSR) is acquiring two upscale retail centers in Texas. The agreement is two separate transactions. The first center, Eldorado Plaza is located in McKinney, Texas. The second center, BLVD Place, is located in Uptown Houston, Texas. Both centers are located in affluent areas. The total cost for both centers is 205 million.

Eldorado has an option to purchase an additional 1.86 acres of  land that will give Whitestone the ability to build and develop an estimated 24,000 square feet of additional leased space. BLVD Place includes an additional 1,43 acres of land that will give Whitstone the ability to develop another 24,000 square feet of space that can be leased.

In a separate press release Whitestone announced that it intends to issue an additional 8,100,000 of common shares

“Whitestone will contribute the net proceeds of the offering to its operating partnership in exchange for units of limited partnership interest in the operating partnership.  The operating partnership intends to use the net proceeds from the offering initially to repay a portion of outstanding indebtedness under Whitestone’s unsecured revolving credit facility, which amounts will then become available for future borrowings, including to fund a portion of the purchase price of two pending acquisitions of properties, or for general corporate purposes.”

Source: Whitestone Press Release

The shares are down approximately 5% in after hours trading.

I am long Whitestone REIT and am considering picking up additional shares if the price drops further.

Comments or thoughts ?

 

 

 

REIT Guru Recommends Sell These REITS

“Brad Thomas is the author of two books”

Brad Thomas, a noted REIT expert has recently placed a sell recommendation on two popular REITS.

Brad Thomas is the author of two books “The Intelligent REIT Investor: How to Build Wealth with Real Estate Investment Trusts” and “The Trump Factor: Unlocking the Secrets Behind the Trump Empire”. He also writes articles for Forbes and Seeking Alpha , has his own Newsletter and Radio show about investing in REITS.

He is also  my favorite author and REIT expert. He has share his experience at real estate development with his readers. It is because of this real world experience I believe it gives him a clearer insight into the financial workings of REITS. With connections to several REITs he follows and his real world friendship with President Trump he is not only well schooled but well connected as well.

He has currently recommended a sell on two widely held REITS. The first is Gladstone Commercial (GOOD) and here is a quoted summary of his conclusion:

“In fact, I would argue that from a risk-adjusted perspective, GOOD shares are now expensive and investors should consider trimming or possibly selling. It is clear that GOOD is not in a position to raise the dividend and the potential for share price appreciation is muted.”

The second sell recommendation is Lexington Realty Trust (LXP)  and here is the summary of his sell conclusion for LXP:

“As you can see below, we don’t see the same “margin of safety” with LXP as we saw a year or so ago. While the company has been successful with its recycling platform, the payout ratio has become tighter, and the potential for dividend growth is less exciting. LXP is forecasted to grow modestly, but the extreme office exposure and tight payout ratio suggests it may have lost some of its sizzle”

I currently own LXP and have decided to hold my shares at this time however I certainly would not recommend buying LXP at this time.

Both REITS are popular among investors seeking current dividend income.

For more information on Brad Thomas visit his website IREITINVESTOR.com

 

Thoughts or comments? Please share them below!

 

 

In The Spotlight – Omega Healthcare Investors Inc.

Omega  Healthcare Investors (OHI)  is currently one of my favorite stocks. Not just because of its current high yield of 7.66% but because I believe in its long term mission and the long term growth of its dividend. Omega Healthcare has increased its dividend for 18 consecutive quarters, the latest of which occurred in November of 2016 and I am expecting the 19th straight increase announcement any day now. The annual dividend is currently $2.48 per share and I am expecting that to increase for the next quarter to $2.52 per share. How would you like to have a job that increased your salary every quarter ? Well you can from an Investment in Omega Healthcare. For an investor that owns $10,000 of the stock ( about 308 shares at today’s current price) This would mean going from $763.84 in annual dividends to $776.16.

Omega Healthcare is partnered with Operators of Skilled Nursing Facilities (SNF)  and Assisted Living Facilities (ALF) by financing the building facilities and leasing them back to the operators under Triple Net Leases (NNN). Its capital is provided under three different programs which are : Acquisition and Lease, Sale Lease Back, or Reinvestment. It operates as a REIT.

 

 

Omega Healthcare Investors Operator Pie Chart
Omega Healthcare Investors Operator Chart

Image Sources: Omega Healthcare Investors Website

Omega Healthcare currently has 81 operators that operate 1001 facilities that are located in 42 states and one in the United Kingdom. It’s latest credit rating was BBB-  from Fitch Ratings.

Considering all the above facts along with our current aging population I believe Omega Healthcare Investors has a bright future and makes a great long term investment for most any portfolio. This is an especially attractive investment for Dividend Income Investors as it has high yield coupled with a growing dividend and a positive long term outlook.

Want even more information? Omega Healthcare has an excellent Investor Relations presentation on its website proving a large array of facts and details along with current Balance Sheets, Income Statements and Cash Flow Statements. If you are interested in this stock it is certainly worth taking a look.

Visit Omega Healthcare Investors Website

What do you think? I would love to hear your thoughts and opinion. Please comment below!