Income REIT

Q

QuickSilver

SF VIP
Location
Midwest
I've got a chance to buy into a new investment offering. The company gives mortgages to large hotels and Corporations on commercial real estate.. I am guaranteed a 7.5% return as an income stream. I've never done something like this, but my financial advisor thinks it's a good opportunity and he has personal money in a similar offering by the same Company. It's a limited offering.. the Corporations are large and well known chains.. What say you?
 

I can only offer this, be careful. I have no money to invest so I'm safe from loss.
 

I'm not putting a whole lot of money in it.. It's just something I have never heard of.. He is looking to provide me with a guaranteed income stream..
 
I'm not worried about it.. It's not that much money.. I think my FA gets a bit of a commission.. It's the least I can do for him. He has taken good care ov me. He's got to make a living too.
 
QuickSilver said:
I've got a chance to buy into a new investment offering. The company gives mortgages to large hotels and Corporations on commercial real estate.. I am guaranteed a 7.5% return as an income stream. I've never done something like this, but my financial advisor thinks it's a good opportunity and he has personal money in a similar offering by the same Company. It's a limited offering.. the Corporations are large and well known chains.. What say you?
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Not enough information. I need to read the prospectus.
 
oldman said:
Not enough information. I need to read the prospectus.
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I have that... Without giving out too much info, It consists of a Capital investment group. What it does is offer mortgages to large corporations like the Big Hotel chains,( Hilton is one of them.) and other Corporations buying huge buildings for Corporate headquarters, who cannot go through the traditional Banking system because of regulations. The money is raised through private investors. You have to be over a certain net worth and income level to participate. Investors are guaranteed a certain rate of return.. in this case 7.5%. At a point in time, the offering closes. You can continue to keep your interest in the fund.. OR.. you can take it out monthly as capital gain and use it as an income source. It is not as liquid as traditional investments.. There is a decreasing penalty up to 4 years. Then no penalty. Right now this particular fund holds the mortgage on 9 properties. This is the 2nd offering of this particular company. The first is operating as designed and my personal FA has some money in it. This is how it was explained to me.
 
NOW I feel like a fool..... the term is NOT income WREATH..... but Income REIT or Real Estate Investment Trust.. I should perhaps invest in a hearing aid lol! because that's what I thought he said.. Here's is an explanation

https://www.reit.com/investing/reit-basics/what-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. REITs typically pay out all of their taxable income as dividends to shareholders. In turn, shareholders pay the income taxes on those dividends.
REITs allow anyone to invest in portfolios of large-scale properties the same way they invest in other industries – through the purchase of stock. In the same way shareholders benefit by owning stocks in other corporations, the stockholders of a REIT earn a share of the income produced through real estate investment – without actually having to go out and buy or finance property.
Most REITs are traded on major stock exchanges, but there are also public, non-listed and private REITs. The two main types of REITs are Equity REITs and Mortgage REITs. Equity REITs generate income through the collection of rent on, and from sales of, the properties they own for the long-term. Mortgage REITs invest in mortgages or mortgage securities tied to commercial and/or residential properties.
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The REIT I am in is private and non-traded. It is a Mortgage REIT.
 
OK, so I think I have an idea of what's going on. Basically, because the average Joe does not have the liquidity to purchase a single note, or whatever the instruments of investment are being called, you are purchasing a piece of the note with a consortium of investors. It sounds very similar to what insurance companies sell for similar purposes and is called a GIC. (Guaranteed Investment Contract.) Say each note, or whatever the instrument is called, costs $500,000.00. The average Joe would not have or want to invest that much money, so they form a consortium of investors that each puts in a percentage or dollar amount. Then, the investor receives a return as stated in the contract. The investor must keep their dough in the contract for a given period of time or face a penalty for early w/d. The only way the investor loses money is if the notes go unpaid by the borrower, then the lender suffers. More than likely, these contracts are not insured.

Previously, I have been involved in similar deals and never lost any money, but after inflation and capital gains are paid, the return narrows. There is also state taxes to consider, if you live in a state that taxes all income, like Pennsylvania. These types of contracts are not hard to come by. Most insurance companies sell them with some minor differences. I have bought oil in a similar fashion. After all, who can afford to buy a barge of oil at a time? So, you join your money with other investors and buy long term contracts in hopes of making money, if the price of crude escalates. People have made millions doing this with many commodities like oil, gold, copper and so on. Or, some will just buy "call" options, which can be a lesser expensive way of investing and the returns may be higher, IF the price goes up. If you believe the price will go down, then you want to buy "put" options.

Sorry, I went way off topic.
 
OH,REIT! That's a horse of a different color. Real estate REITS are OK, but like I explained earlier, they work the same way. Several companies sell REITS. Jim Cramer used to be a big investor in REITS. Myself, I have never invested in them because I was always more interested in equities, bonds and commodities.

I do have investor friends that have and do invest in these instruments. That's where guys like Donald Trump borrow their money from. I just never got involved in them, so I better just pass on giving out anymore guidance. It's like any other investment. Do your homework and ask around to other investment firms what their opinions are. If you deal with Scottrade or Fidelity, they may be willing to help you.
 
Thanks oldman... I feel better.. I think also that they place criteria on who can invest because it's not very liquid.. they don't want someone in for 6 months and then needs all their money out for some emergency. As I said, I don't have a huge amount in this, but enough that I wouldn't feel very good about losing it. However, it seemed like another spigot that can be turned on for income when I retire in 2 years.


sheeesh... I could have sworn he said "wreath" lol!!
 
I spoke with an investor friend of mine after I read your post and he does invest in these instruments. He said that when the market bombed in '09, like everything else, he lost his shirt on REITS because so many of them were part of the bundles that were being sold to the likes of Lehman Brothers along with derivatives and we all know what happened with those. But that was then and this is now. Real Estate is one section of the economy that has not turned around yet and although REITS are more connected to commercial real estate, I would tread slowly. Keep an eye on your investments on a daily basis, find out who the big REITS investors are and follow in their footsteps. I would also be watching to see who is putting their money in these instruments. If a guy like Cramer is investing in them, I would feel safe. Some people think he is a windbag, but windbags don't become millionaires over and over.
 
oldman said:
I spoke with an investor friend of mine after I read your post and he does invest in these instruments. He said that when the market bombed in '09, like everything else, he lost his shirt on REITS because so many of them were part of the bundles that were being sold to the likes of Lehman Brothers along with derivatives and we all know what happened with those. But that was then and this is now. Real Estate is one section of the economy that has not turned around yet and although REITS are more connected to commercial real estate, I would tread slowly. Keep an eye on your investments on a daily basis, find out who the big REITS investors are and follow in their footsteps. I would also be watching to see who is putting their money in these instruments. If a guy like Cramer is investing in them, I would feel safe. Some people think he is a windbag, but windbags don't become millionaires over and over.
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That was the first thing out of my mouth... REAL ESTATE??!! The housing bubble and subsequent crash and burn is still too fresh.
 
I would've said yes on a REIT 10 years ago but now I wouldn't go long term. Don't put all money there either.

One of the local malls that went for over 100 million dollars around the turn of the century was just recently sold for about 30 million dollars. The company 'walked' taking the loss on their books. Malls are just one example of dying real estate investments around here anyway.

http://www.businessinsider.com/shopping-malls-are-going-extinct-2014-1

Throw in many casino businesses going bankrupt in which gambling can feed a town, resort or hotel industry commercial property is starting to look weak. I heard they can't even sell the closed Atlantic City New Jersey casinos at bargain basement prices.

http://www.nytimes.com/interactive/2014/08/11/us/crowded-market-for-casino-gambling.html?_r=0

They say from a real estate stand point a fund or group heavy in self storage may be 'a' strong market now because as much as they can charge is what they will charge for rent profit from. Public Storage(PSA) is in the REIT category.
 
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REITS are ok for a small component of your portfolio. I had one when I was younger and more aggressive. For retirees, I wouldn't put more than 5% in one. In the Fidelity Freedom 2015 Fund which is an all in one fund for someone retiring in this time frame, it has less than 1% in REITS. So as others have said, be conservative. I don't have any in one at the moment.
 
The one I'm in has only 9 properties and all very large mortgages. I don't have very much in it.. just about 2%. Locked in for 4 years with 7.5% return guaranteed.
 
Years ago, I was reading Kiplinger Magazine and became interested in REITs. Over time, I used my IRA to accumulate REIT stocks and used a discount broker for their purchase. I always felt more comfortable with those listed on the NYSE. They continue to pay a good dividend and, being very carefully selected, have been a good investment.
 
I don't buy into any of these sort of "investments". I watch American Greed & Scams and see wayyy to many people with slick sales pitches and prospectus's that are flat out lies. Nothing against your financial advisor, he/she may be a fantastic person but the organization who put this together is who to be careful with. I side on the caution side, and only play with stocks/mutual funds.
 
Papa said:
I don't buy into any of these sort of "investments". I watch American Greed & Scams and see wayyy to many people with slick sales pitches and prospectus's that are flat out lies. Nothing against your financial advisor, he/she may be a fantastic person but the organization who put this together is who to be careful with. I side on the caution side, and only play with stocks/mutual funds.
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I've never had a financial advisor because I never found one I totally trusted. I watch American Greed which everyone should watch so they will avoid those clever scams. My Discount Broker has complete research on every stock, even including insider trading. And I always get an Annual Report before I trade. I may be a little too cautious, but I limit my trades of stocks to those listed on the NYSE. I have never recommended a REIT because I am retired and have plenty of time for research. The best advice is to never buy a REIT stock unless you have time for doing the research.
 
QuickSilver said:
I've got a chance to buy into a new investment offering. The company gives mortgages to large hotels and Corporations on commercial real estate.. I am guaranteed a 7.5% return as an income stream. I've never done something like this, but my financial advisor thinks it's a good opportunity and he has personal money in a similar offering by the same Company. It's a limited offering.. the Corporations are large and well known chains.. What say you?
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You are dealing with a NON-fiduciary "adviser" who stands to earn probably about a 10% commission IF you bit on the investment. Non-fiduciaries do not legally work for you. They are nothing more than salesmen. Do not trust them!
There's endless articles on the internet about non-traded REITS. Avoid avoid avoid.

According to a study, 71% of non-traded REIT's under performed their benchmarks


Non-traded REIT's under performed comparable publicly traded REIT's by about 1.4 percent per year during a 21 year period ending in 2011

Non-traded REIT's are illiquid. Why would you lock your money up in one of these? There's publicly traded index fund REIT's like VNQ that can be bought and sold at any time for any reason.

Non-traded REITs are also highly risky. A lot of times you don't find out what they're worth until the very end. "Behringer Harvard REIT I" investors saw their final share values drop a whopping 53%. That 7.%% is merely interest payment rate. That's NOT annualized return on investment!
 
My opinion on REITs
1. Only buy publicly traded REITs with a high daily trading volume.
2. Buy equity REITs, not mortgage REITs.
 
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