Real Estate Investment Trusts

 Posted by at 5:24 am
Jun 272014

What follows is the work of friend and colleague Jack Falvey–who many will recognize as the author of the “blurb” on the back cover of my book, Small People–Big Brains. Jack’s authoring this online investor program for Saint Anselm College… a free daily investor brief. See the bottom for additional information… try ’em! The price is right and I think you’ll enjoy Jack’s style. As a bonus you’ll learn a lot! Subscribe here.

Real Estate Investment Trusts are mostly about big buildings.

Jack F HeadshotCommercial real estate investment is best done as a group activity in order to spread risk. By owning multiple properties, each legally separated for liability purposes, a relatively safe element can be added to an overall investment plan. There are publicly traded REITs (Real Estate Investment Trusts), and there are REITs where investors of size can buy into a fund used to buy properties. The company managing this process operates as a Real Estate Investment Trust. They buy and sell properties that produce rental income for their fund shareholders. They charge the fund a management fee for this service.

Their expertise involves buying properties at desirable market prices that will produce steady rental income for their owners and that will appreciate over time. Acquiring mortgage funding for their purchases is part of the process. Private REITs cater to investment portfolios that seek a real estate component. These are often retirement funds or, in some cases, even sovereign funds.

Publicly traded REITs are stock exchange listed and report earnings, as do all public companies. Their product is real estate investment services. They perform according to their skill levels and the ups and downs of the capital and property markets.

They are, in effect, mutual fund companies that operate exclusively in real estate investments. They are highly specialized in what they do. The value of a property and its ability to produce income is a relative determination. There is considerable judgment involved in each transaction.

REITs prosper on their performance. They are captive to both capital and property markets. Because they are asset backed, they are considered to be more secure by some than investments in pure equity or pure debt opportunities.

Most real estate investors are merely buying their own home. Some buy multi-family homes. Some buy a number of multi-family homes. Some invest in a commercial property. All this is done for appreciation and potential rental income. On a small-scale, it makes sense to manage your own holdings. Scale all this up and REITs are what you have.

Investor Education Briefs is an online investor education program provided by the Institute for Politics at Saint Anselm College. It goes out each business day of the year at no charge. The editorial opinions of Jack Falvey, a Fellow of the Institute and a frequent contributor to The Wall Street Journal and Barron’s, are provided for investor education only and are not offered as financial advice. Anyone may enter or exit the program at any time. There are no tests or academic credits involved. It is designed as a free program which will recycle and be updated every twelve months. Subscribe here.


Where can I get…?

 Posted by at 7:27 am
Jun 032014
"You are going to pay me, darn it!"

“You are going to pay me, darn it!”

Fortunately, I’m able to see the humor in this question–I get it at least once a year from a do-it-yourself buyer or seller. “Where can I get a blank purchase and sale form that will protect my interests if I don’t want a broker involved?”

I usually manage NOT to answer, “Gee, I can’t answer that since you don’t want a broker involved and I am one.”

It’s a really tempting answer.

Why do we get requests like this, anyway? We’re quick to explain that some people simply “don’t want to pay a commission.” We’re quick to judge but slow to answer the questions that are hidden in that objection.

Coincidentally, I happened on an article that raised the question “Why do real estate agents still exist?” Using the over-worked (but applicable) analogy to travel agents, the article offered several reasons. Ironically, most of the answers were about agents, not customers or clients. One answer was that agents still exist because the Internet is making it possible for them to be more productive. A true statement, certainly, but also a bit self-serving and not particularly helpful to a buyer or seller.

I liked the question more than the answers. So let me ask my readers, “Why do real estate agents (licensees) still exist?” Don’t tell me it’s because we have the blank forms or the MLS, please. In fact, I’d like you to pretend you’re being asked the question by someone who doesn’t know much about the business of real estate. What are you going to do for me that I can’t do for myself given all the information at my disposal on the Internet?

If you think it’s an easy question to answer, you’re probably not trying hard enough. So let’s upgrade the question and pretend it’s being asked by someone who’s bought and sold property a dozen times over the past few years. What is your value to someone in that category? What can you do for that person that he or she can’t do?

Your assignment is to come up with a list of at least five to seven contributions (benefits) you can provide to that person that he or she can’t get anywhere else. Some generalities are okay, but specifics are a lot more powerful. A hint might be that it’s likely to be less about what you have to offer and more about what the buyer or seller needs in today’s economy and environment. The reason you need at least five to seven is simple–if your prospective client is (for example) a marketing and sales expert, your marketing program diminishes in value and importance.

If you want extra credit for the assignment, find somebody who will challenge your reasons and assumptions and maybe even argue with you. While this (arguing) is not a great technique to use with prospective clients, it can certainly sharpen your thinking.

And if you want bonus points and a sticker, answer this question: Why will real estate agents exist ten years from now?