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.