A.D. Cantelmo Property Management
Our Business is Property Management in Orange County California
Investing in Real Estate, but not owning the asset
Being in the Property Management business, I see the value
of investing in Real Estate and I also see the downside. The one problem for
people getting started in Real Estate investing, especially here in California
is the cost. Buying a home for yourself to live in is difficult enough, but
then buying an investment property can become impossible for many. I have been
hearing commercials on the radio about REITS (Real Estate Investment Trusts) so
I thought I would write a little about them and see if they are a good way to
get started in Real Estate investing, if you don’t have the money to buy a home
outright.
What is a REIT
A REIT, or Real Estate
Investment Trust, is a company that owns or finances
income-producing real estate. Modeled after mutual funds, REITs provide
investors of all types regular income streams, diversification and long-term
capital appreciation.
Cost of getting into a REIT
The cost of getting into a REIT will vary depending on the
REIT, there are many REIT’s, that offer Direct Purchase DRIPs (Dividend
Reinvestment Plans) These plans allow the investor to purchase shares
without paying a commission. Some of these REITs that offer the DRIP plans
allow investors to get in for $100 minimum investment.
Am I a Stock investor or a Real Estate investor
When you buy a REIT, are you buying a dividend paying stock,
or a Real Estate investment. This question can be confusing. The answer is that
you are really a Real Estate investor due to the fact that your investment is
tied to the fortunes of the Real Estate market and interest rates.
Advantages to buying a REIT
We already talked about one of the advantages and that is
the low initial investment needed to get in.
REITs must pay out at least 90 percent of their income
as dividends. This requirement is the number
one reason why investors buy REITs. Management can raise the payout to
more than 90 percent but, by law, can’t lower it below 90 percent. In
other words, management can’t decide to slash the dividend payment.
REITs help diversify an investment portfolio. Because real estate values don’t generally correlate
to stock prices, stock prices and real estate values can move together or
in completely opposite directions. Unless a real estate slump triggers a
financial crisis or vice versa, a portfolio that contains both stock and
real estate holdings may provide some protection over slumps that affect only
one or the other.
REITs own physical assets with a value all their own
that can appreciate over time. As an investor, you own tangible assets that tend to rise in value over
the long term.
The downside of owning REIT'S
Falling occupancy rates and increasing vacancies hurt
revenues.
Share prices can drop when property values fall.
Share prices can fall with the broader stock market
based on supply and demand of shares.
High dividend payouts for REIT's force management to
take on debt to expand real estate holdings.
Rising interest rates hurt profitability.
Not all REIT dividends quality for 15-percent tax
rates. Some are taxed as ordinary income.
Information
from: Dividend Stocks For Dummies
Investing
in Real Estate can be a great way to
grow your money and owning the property is
really the best way to be a Real Estate investor, but if that is not possible,
a REIT may be a way to get your feet wet. Of course before you invest in a
REIT, you need to do your homework. I am not in anyway an expert and the
information that I have here is just touching the surface of what a REIT is and
the Pro’s and Con’s that may come from an investment.
A.D. Cantelmo Property
Management Specializes in
Property Management in Orange County Ca