It seems that trading REITS for income purposes is a more liquid and diverse way to invest in real estate. Many REITS are still yielding 7%+. Here in the northeast one could buy a 1 br. condo for 200,000 and rent monthly for about 1000. This would yield about 6% per year. The big difference of course is leverage. You only need maybe 5% down to buy the condo. If you go full leverage in a trading account you need at least 50 % down. I wonder if there is anyway around this. Obviously no bank is going to loan anyone 200,000k to go buy REITS. Besides the obvious "real esate is about to burst" coments I'd be interested to hear what people have to say about this. Although R.E. is overpriced I really like the idea if a fairly steady income stream. Ideally I would love to use leverage to buy REITS, but the leverage potential just isn;t there. Any thoughts.
I have thought about this long and hard. AFAIK, being able to do soemthing about it is outside the realm of the small trader/investor. nitro
Yeah, wouldn't it be awesome to be able to leverage into REITS like that! (For people that know what they're doing, anyway.) The single property situation you desribe sounds ok, though nothing to write home about. The reason I say that, is that even if you put that sucker on a 30 year fixed (30year fixed isawesome!), factoring in only 11months rent per year, add costs, taxes, you're probably breakeven or slightly negative in terms of monthly cashflow; and that usually severly limits just how many times you can do this (limits how many properties you can buy). And without the capital appreciation potential (well, who knows about that..) I'd have to question the wisdom of doing it at all.
Depends on the kind of real estate you're talking about. Rental property, e.x. apartment complex, are reasonably priced due to higher vacancy rate. Residential property are - needless-to-say - in a tad of a bubble. Commerical property are heavily underpriced. Only problem is that the lending rate is contingent upon revenue stream. Thus, the complex better have consistent rents or you better have a ton of cash on hand. If you're low on the cash side, I recommend getting a joint partnership of some sort. And if at all possible, look into buying rental property or even better start looking at Canadian real estate. Hope this helps.
If you want to leverage using financial securities (i.e. non-physical), here's a thought: Buy CMO or mortgage back passthrough. Look hard at the discount mortgage back. They're selling at ridiculous price. Moreover, their prepayment structure are inherently more stable .... although that could change at any minute due to currnet interest rate level. If you want <b>Further Leverage</b>... go see Morgan Stanley Private Client Division (or American Express, etc.) I think if you have enough dough: They're willing to lend you Prime Rate + n-basis point, and you could invest that on mortgage back... But you gotta have some serious dough
Just out of curiousity...convexity and duration, in theory, dictate that bond prices will rise quicker than they will fall. Since REITs act a great deal like bonds, will the same hold true for REITs? The underlying fundamentals wouldn't really dictate this, would they? That's my greatest fear with REITs is, despite the hefty dividend, you have principal risk...I guess the analog with bonds is default risk...but at least you may have some claim as a debtholder...anyhow, thoughts?
Yes, this question has been nagging me a lot too... I am currently looking for a few places to dump some excess non-productive accumulated profits, that will bring a higher return than simply keeping it in a bank... REITS seem viable since I don't want the hassles of dealing with physical real estate, but I would obviously prefer to do it on excellent margin terms so that I can spread the capital around a bit... I doubt that such terms exist (do they?)... Any further thoughts on this and/or ideas on where to dump excess capital for long-term cashflow purposes would be appreciated e.g. sustainable self-managing businesses that simply require me to inject cash into them, low-risk passive income assets that beat a bank's rate, or any other ideas... what I do not seek are highly speculative ventures; I simply seek relatively low-risk cashflow generative ideas with modest returns which, neverthless, beat a bank's (the higher-risk speculation is best left to trading, and not to what I don't understand)...
I seriously looked into income property before I started trading. While I haven't accumulated any (the down payment to which became my trading capital), its definitely in my grand plan of financial independence. The leverage available for real estate makes the leverage on e-mini contracts pale in comparison (ok, maybe that's an exaggeration). 3% to 0% for homes, 5% to 20% down for owner occupied income property. The advantages are many: depreciation and deductible expenses to shelter your income and financial freedom with the constant generation of rental, passive income. Of course, you have to put up with a rather large amount of legwork that your typical overweight, slovenly daytrader just isn't accustomed to. Real estate is, however, one of the truer forms of real wealth. If you don't already own your home, you might consider using your excess wealth to purchase something along the lines of a du/triplex. It becomes both a business with all the advantages as well as a home, allowing you to build up equity. And if you're really lazy, you can simply hire a rental management firm to deal with your neighbors. Anyways, I wouldn't say real estate is "simple." May be you have someone you trust that would do the real estate end of things, but a lot of people can get burned that way.
Well, why don't you plug some of that excess cashflow into hiring a fee charging CFA qualified financial advisor, who will be able to epxlain it all to you, rather than relying on the suspect advice of anonymous "elite" traders.