Is Canada Your Best Path To Invest In U.S. Multifamily REITs?

chart03Multifamily rentals in the United States have been one of the most compelling investment thesis topics in U.S. real estate. It certainly is not news that the great recession led many hard working Americans to live a renter’s lifestyle. The fact that large portions of homeowners were quote unquote under water made some people challenge the sense of stability in the housing market. In addition, many saw the risks that are associated with owning a property. Many millennials, who were faced with large college loan debt and stringent borrowing requirements could not take on any additional debt that is required to purchase homes. Instead, they chose to either rent or stay home with their parents. These situations result in the fact that, after homeownership peaked at seventy percent in 2005, it has greatly declined without any signs of stabilization in the near future. We can only guess if homeownership levels will revert back to where they were, or if we will see an entirely new normal moving forward.

chart04Another consequence is that multifamily REITs have become expensive on an AFFO multiple basis. It was just a few weeks ago that I indicated that small caps might have the best entry point for stocks that dwell in this REIT sector. Thanks to a reader’s comment, I also did research on Canadian REITs that invest in U.S. multifamily properties.

Pure Multi-Family REIT

chart01Pure Multi-Family REIT is a small cap business that is listed on the TSX-Venture, a Canadian electronic exchange for emerging companies. The company’s market capitalization is approximately US$230 million. They own fifteen properties that are located within three metropolitan areas of Texas including Dallas, Houston, and San Antonio, along with Phoenix, AZ. Pure Multi-Family stocks are traded under the symbol RUF.U in US dollars, and RUF.UN in Canadian dollars.

Much like many real estate investment companies Pure Multi incorporates a complex investment structure. Raising equity in Canada and owning properties in the United States certainly adds an additional layer of entities. The Canadian entity was formed as a limited partnership; however, they own a Maryland based U.S. REIT under which the properties operate.

chart02Pure Multi has issued two types of units, including Class A and Class B. The Class A units are available to investors and have rights over 95 percent of all distributions and all net assets. The company’s financials are reported in U.S. dollars, however they can be viewed in the SEDAR website which is the Canadian version of EDGAR. Their financials are reported under International Financial Reporting Standards (IFRS), so it is certainly possible to gain a better aspect of the stock’s net asset value. IFRS requires an estimate of the fair market value of a REIT’s investment properties. Pure Multi-Family’s management reported that, for the nine-month period ended September 30, 2015, they took into consideration independent appraisals on ten of their investment properties, which represented 67% of the properties that the company owns.

From a valuation standpoint, Pure Multi is trading on par with small cap multifamily REITs in the United States (Bluerock Residential, Independence Realty Trust, NexPoint Residential, Preferred Apartment Communities). The company’s dividend yield is at 8.2 percent, and the price-to-AFFO is at 12x. On average, its U.S. peers’ dividend yield is at 8.8 percent, and the price-to-AFFO is at 12x.

Source: Preferred Apartment Communities (NYSE:APTS), Bluerock Residential Growth RE(AMEX:BRG), Independence Realty Trust, Inc (AMEX:IRT), NexPoint Residential Trust, Inc (NYSE:NXRT), Pure Multi-Family REIT LP (TSXV:RUF.U), census.gov, Fast Graphs.

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Differences Between Single Family and Multifamily Home Investments

san-francisco-210230_1280Investing in residential real estate is always a good way to diversify your investment portfolio. The proper real estate investment option for you certainly depends on the time you can dedicate to managing and maintaining the properties along with your long-term financial goals. A good place to start is with either single family or multifamily properties. They have their own pros and cons, and are appealing to investors based on personal finances and investing preferences.

Single Family Investment Properties

There are many advantages to investing in single family properties over multifamily properties. The first being that many single family homes can be purchased below the fair market value. This is an important investment strategy because profits are made and lost at the time the property is purchased. When an investor purchases a property at a percentage below market value, they gain that percentage in equity from day one.

For example, a single family property is worth $100,000. An investor purchases it for $90,000 or ninety percent of the current market value. The investor gains a $10,000 or ten percent equity stake in the property as soon as it is purchased.

That being said, many multifamily properties are sold above their present market value due to the fact that they are less available in many areas. It all comes down to the law of supply and demand. In addition, the prospect that future improvements will result in higher rents tends to keep multifamily sales prices above current market value.

Property management expenses vary depending on the logistics of managing the properties, along with tenant population. It is certainly true that higher end single family properties with qualified tenants have less turnover on average than their multifamily counterparts. Renters of these homes tend to view their living conditions as more permanent, and have a far greater sense of pride in maintaining the property themselves. This results in less maintenance costs and repairs for the investor. Tenants of single-family properties typically do not outgrow the space nearly as quickly because there is usually a backyard, additional bedrooms, and, in most cases, a basement.

Multifamily Investment Properties

There are many benefits to investing in multifamily homes over single family properties. Multifamily presents a more reliable source of income. A vacant single family property generates absolutely zero income, while a multifamily commercial real estate property will rarely sit one hundred percent unoccupied. The units tend to be less expensive than a single family and therefore fill up faster. Many first-time real estate investors purchase multifamily properties so they can save money by living in one of the units. Living on the property also helps reduce the time and costs associated with management and maintenance.

Another huge benefit of multifamily properties is the fact that investors can own multiple units with less mortgage loans. For example, if an investor purchases ten single family homes, they are required to obtain ten separate mortgages. They are required to make ten separate monthly payments, along with ten quarterly property tax payments, and ten property insurance payments. Applying for ten loans can be frustrating, and, once obtained, all of the payments and paperwork is very time-consuming. On the other hand, if an investor purchases a ten-unit apartment building instead, they have the benefit of the same ten rental incomes with only one mortgage, one property tax, and one property insurance to deal with.

As you can see there certainly are differences between single family and multifamily residential property investments. If purchasing residential real estate is a good fit to your personality and investment strategy, then a combination of single-family, and multi-family units will help build a balanced portfolio.

Written by GilverBook Team

REITs Vs. Lease Option Investments

citiy-731216_1280When searching for a profitable real estate investment, it is always a smart idea to research various options. This article will provide you a comparison between Real Estate Investment Trusts (REITs) and a lesser known strategy referred to as Lease Option or Rent to Own property investing. Both methods have the ability to earn investors good returns; however, they are completely different from each other. That being said, you need to know exactly what you are getting yourself into. In order to increase the probability of success, it is crucial for the investment to fit your personality.

Let us start out by explaining exactly what a lease option contract is. The titleholder of the property agrees to lease the asset to a tenant that has an option to purchase the property for a price that is agreed upon at the start of the contract. Typically, the tenant has the option to purchase at any time during the contract term. Another aspect of this type of structured deal is that a portion of the monthly rental payment is applied towards the buyer’s down payment only if they end up purchasing the property. With a lease option contract the tenant is responsible for all maintenance issues, making life easier for the investor or owner.

Lease option investing is similar to flipping properties. It is crucial for the investor to purchase the property at less than market value in order to guarantee a profit when the tenant exercises the purchase option. If the tenant fails to purchase the property, there should be plenty of cushion to either sell the property to someone else, or lease the property with an option to purchase to another party.

For people that prefer a more hands off approach, investing in REITs is the perfect real estate investment strategy. As the investor, you are purchasing stocks in large real estate management companies that specialize in purchasing, developing, managing, and maintaining multiple properties. These assets include apartment building, office buildings, hotels, warehouses, storage, shopping centers, and other large facilities. Typically, REIT stocks are traded on major stock exchanges such as the New York Stock Exchange (NYSE).

Investors do not need to concern themselves with issues such as locating properties to purchase, making monthly mortgage payments, maintaining and managing tenants, liability issues, among a plethora of other items that property owners deal with on a daily basis. Instead, they are leaving all of those tasks up to the management teams of the companies they are investing in. Liquidating the asset is as easy as picking up the phone, or pressing a few buttons on your computer, smartphone, or tablet. In addition, most REITs pay dividends that add up over time.

We believe that any good real estate investment portfolio should include multiple REITs. Having said that, if lease option property investing sounds like something that you would enjoy, then try adding a deal or two to your overall strategy.

Written by GilverBook Team

Investing In Residential Real Estate Properties vs. REITs (Part 2/2)

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Click here if you haven’t read Part 1

Purchasing REIT stocks is a much less hands-on approach to real estate investment. Once the investor has decided which REIT stocks to buy, all that is required is to track the stock value, get paid regular dividends and decide when to sell. There is no financial responsibility once the initial purchase has been completed, unless the investor decides to buy additional shares. Liquidation is easy: You just pick up the phone or enter the necessary information on your PC, tablet or smartphone.

Among residential REITs, our due diligence has spotted certain highly-ranked stocks with regard to dividend-generation potential. Essex Property Trust (NYSE:ESS), which invests in apartment communities on the West Coast, has greatly exceeded our expectations. It has no sole leading indicator that outperforms its peers; however, all distributing-boost components stand out as above average. The downside is its heavy price-to-FFO — around 24× vs. the sector median of 19×.

chart02

Note: As of 23 October of 2015

Mid-America Apartments (NYSE:MAA), currently trading at 16×, is a cheaper choice, with a dividend-generation potential somewhat above the sector median — not little for one of the best-performing REIT space sectors at the moment. Additionally, dividend yield is at par with peers’, unlike Essex’s, which has the lowest. Also unlike Essex, Mid-America invests in Southeastern and Southwestern markets — about ⅔ in large markets, the rest in secondary ones.

Mid-America released strong Q3 results on October 28. The highlight has been its 2015 FFO guidance, which, compared with 2014 FFO, increased from 7 to 9 percent.

NexPoint Residential Trust (NYSE:NXRT) and Post Properties (NYSE:PPS) are also highly-ranked and will be subject to analysis in coming posts.

Source: Fast Graphs, Essex Property Trust, Mid-America Apartments

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Investing In Residential Real Estate Properties vs. REITs (Part 1/2)

real-estate-475875_1920Many people earn great returns on their investments by putting their money into residential real estate purchases. These types of properties include singe family homes, multi-family homes, individual condominiums, and townhouses. Although some investors purchase and then quickly sell the residential properties for profit, otherwise known as flipping, for the purpose of this article we will concentrate on holding the assets for long-term rental purposes.

We will also compare purchasing individual residential properties to investing in Real Estate Investment Trusts or REITs. Both options provide investors with an excellent opportunity to earn great returns on their money. However, they are quite the opposite of each other regarding the overall investment strategy.

Residential Real Estate Properties

Purchasing individual residential properties may very well be the best option for investors that are hands-on and enjoy having far greater control over the situation. That being said, investors certainly need to be aware of the various aspects involved before considering this type of commitment. It can take a considerable amount of effort and time in order to locate the correct single-family property.

If purchasing more than one property, investors need to multiply that effort and time by a significant amount. Some might not agree, but a good rule of thumb to go by is that two properties require three times the amount of work. Another hugely important factor is financing. Most people are not able to pay for the purchases in cash, and rely on obtaining mortgages. Regarding mortgages, some aspects to keep in mind are the down payments, monthly principal and interest payments.

Other factors to consider are the property taxes and insurance, maintenance fees, and management. If an investor decides to manage the property, s/he needs to be prepared to answer phone calls in the middle of the night from unhappy tenants. On the other hand, hiring property managers will add on yet another expense. The expenses need to be paid even if the properties are empty or the tenants are not paying their rent. Residential properties are often hard to sell, so it may take time to liquidate the assets. Investors are able to borrow against the asset, and build equity over time.

To be continued…

Should You Purchase Commercial Real Estate or REITs?

pieces-of-the-puzzle-592781_1280Investing in commercial real estate can be an extremely profitable venture. This sector includes properties such as retail stores, office buildings, industrial property, medical centers, hotels, farmland, multi-family housing or apartment buildings, warehouses, garages, and retail malls. If you are considering making an investment in commercial real estate, there are many well-positioned options for you to choose from. Serious consideration needs to be given to the type of involvement you would like to have, along with the financial commitment that you are able to make. We have outlined two excellent investment strategies in the commercial real estate arena, providing you with the key points for each option.

To many people, making an investment in commercial real estate involves purchasing and managing a building or buildings. This traditional method may work well for some investors; however, it is crucial to be aware of exactly what is involved in this type of commitment. Owning commercial property encompasses a hands-on approach.

The investor must spend time and resources to locate suitable properties and negotiate on purchase prices. Once purchase agreements are in place, the investor is responsible for entering into a mortgage with a lender. That is unless the investor happens to have cash assets. Typically, a twenty percent down payment is required, which can add up to large sums of money. For example, if the purchase price is $5 million, the twenty percent down payment is $1 million.

In addition, investors must be responsible for the monthly mortgage payments, property taxes, insurance, maintenance, and management fees. The bottom line is the bills are due even if there are no tenants to pay the rental income.

On the other hand, purchasing Real Estate Investment Trusts (REITs) is a great method for commercial real estate investors that are looking for a less involved approach. You do not need to think about management, liability issues, or working with tenants. When people invest in REITs, they are buying shares of companies that specialize in owning, operating, and managing commercial properties.

REITs trade on major stock exchanges, such as the New York Stock Exchange (NYSE). Investors are depending on the expertise of the REITs management teams to secure their investments. With a REIT, the investor is not responsible for making any monthly payments; in fact, most REITs pay regular dividends.

Additionally, investors are able to liquidate the investment extremely quickly; however, you cannot borrow against the asset. The investment may be as short term as selling the same day, or can be held in a portfolio for years on end, providing investors with extreme flexibility.

Written by GilverBook Team

What Should I Look For When Buying REIT Stocks?

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When we analyze Real Estate Investment Trusts (REITs), one of our first goals is to research dividend growth, including the elements that perpetuate the escalation. The companies in question must generate greater earnings in order to accomplish that. In the world of REITs, this falls under the metric called funds from operations, or FFO.

FFO has traditionally been either the first or second metric that every REIT states in their quarterly financial reports. If the FFO increases, companies will more than likely reward their shareholders with larger dividend payments. We must remember that REITS are required to distribute ninety percent of taxable income to their shareholders.

Regarding well-established REITS, consistency in delivering dividend increases, along with management’s commitment to build healthy dividend track records, have become the gold standard of the industry. Although past history certainly does not guarantee future performance, several REITs position investing in their companies based on the number of consecutive quarters they pay either increasing or flat dividends. This is a powerful pitch due to the fact that it takes decades to build up a good reputation based on strong distribution. That being said, it only takes a quarter, and often times only a month of non-distribution of dividends to unravel years of hard work.

Dividend yield is certainly something that you should be paying close attention to, but there are other factors that need to be considered as well. Stocks often enjoy high yields due to the decline of the share price instead of paying large dividends. Thereby high yields are not always a clear-cut indication of a good stock to purchase.

Finally, it is extremely important to research whether or not a company is distributing dividends in an excessive manner. The dividend payout to FFO shows the exact percentage of FFO the dividend is equal to. Healthy companies typically maintain a dividend payout below the ninety percent mark. This enables them a cushion to leave room for further increases.

REITs vs. Flipping Real Estate

bathroom-691341_1280Historically, Real Estate has always been a solid investment outlet with an abundance of opportunity to build wealth. There are many real estate investment options available; however, I will be concentrating on two in particular: Flipping real estate versus investing in Real Estate Investment Trusts, or REITs for short. Flipping property and REITS are an extremely interesting comparison, due to the fact they are on polar opposite ends of the real estate investment spectrum. Each have tremendous financial potential, but like any investment, there are certainly risks to consider.

Flipping Real Estate

Many investors have recently earned a fortune flipping real estate. Flipping typically involves purchasing property for well below how much it is worth, and selling it at a higher price, at or near market value. The principle is simple; however flipping real estate is not nearly as easy as it sounds.

Typically, most of the properties you will be able to purchase for less than market value, require extensive rehabilitation. In the minimum they need smaller repairs, and cosmetic updates. Of course this costs money, and most definitely needs to be factored into your investment strategy.

Anyone interested in flipping a property should bring in a professional construction expert. A good contractor will not only let you know the exact work that needs to be performed, but how much it will cost to fix up the property in order to sell it for the maximum amount. This figure is an enormous factor regarding profitability.

For example, if you purchase a property for $75,000, and spend $50,000 on repairs, and cosmetics, the market value must be well over $125,000 for you to earn a profit.

If you do not have the cash to purchase the property, and make the necessary repairs, and updates, then you will need to carry a mortgage. Factors to consider are the amount of cash required for the down payment, and the amount of the monthly principal, interest, taxes, and insurance. The property could sell extremely quickly; however, you need to be prepared for the fact that it may take several months to sell. Always factor in at least three to four months of mortgage payments when formulating your investment strategy.

Last but not least, you will need to hire a real estate agent to market and sell the property once all the work is complete. Please keep in mind that they charge three to five percent of the gross sales price to be paid upon the sale of the property.

For example, a $100,000 sale pays the agent anywhere from $3,000-$5,000, not too shabby for the agent, but a lot of money is deducted off the top of your profit.

Pros vs. REITS: If you are a hands-on person who enjoys being involved on a daily basis, then flipping real estate may be a great investment for you. There is also the potential to earn a huge profit. Some investors double, or even triple their investments when flipping real estate.

Cons vs. REITS: Flipping real estate often takes up a large amount of your time, and places you in a vulnerable position regarding liability. It can cost a lot of upfront money as well, and the asset takes time, energy, and money to turn liquid.

Bottom Line: If you have the time, and resources, and would rather be a big fish in a small pond, then Flipping can be a great method to invest in real estate.

Investing in REITs

Putting money into REITS also provides investors with an extremely lucrative method of earning enormous profits on their investments. Once you find a particular REIT to invest in, you’re able to sit back, and watch your money grow. Please see some other factors regarding investing in REITs below.

Pros vs. Flipping: When you invest in a REIT, you’re working with multi-million, or even billion dollar companies that control a vast array of properties located around the globe. Investors can rely on the REITs’ expertise in real estate in order to turn a profit on their investments. In addition, REIT investors have zero liability regarding the properties, so if a person slips on the front steps, the investor does not need to deal with it. REITs do not require huge amounts of money to invest, so anyone looking to get their feet wet in real estate investing should consider REITs. They also provide the investor with a means to liquidate the asset quickly.

Cons vs. Flipping: If you enjoy a more hands on experience with your investments, REITs do not provide a lot of action once you make the purchase, or decide to sell it. In addition, REITs do not provide day-to-day decision making for investors that like to control things.

Bottom Line: REITs are a great way to invest in real estate on the local, national, and international level. Investors do not need as much time or resources to partake in REITs as they do in flips. If you would like a less hands-on investment, and prefer to be a smaller fish in a much larger pond, then REITs are the way to go.

Written by GilverBook Team

Why Invest in REITs?

The investment vehicle, signed into tax law in 1960, gives mom-and-pop investors a way to take part in big real-estate holdings.

Sourced through Scoop.it from: www.thestreet.com

Investors typically put their money into Real Estate Investment Trusts (REITs) for the same reason they make direct investments in commercial real estate. The main reason is steady income generated from rental contracts, along with the long-term appreciation. In addition, people tend to invest in direct commercial real estate because it is mostly uncorrelated with the stock market. To some degree this holds true in REITs, although the stock performance of REITs moved in tandem with the broader market following the Great Recession.

One of the most notable differences between investing in direct commercial real estate and REITs is liquidity. The REIT investor has the ability to sell stock at any time if they are not satisfied with the investment; direct commercial real estate owners, however, need to hold onto the properties throughout the maturation process.

Here are a few other examples as to why people like to invest in REITs.

1. Diversification- REITs typically own interest stakes in multiple properties located in different locations. For example, a hotel REIT is suffering from flat rates in Manhattan, New York; they have the ability to offset that with soaring rates in Boston, MA. Additionally, if a property is vacant due to renovation or repositioning, the vacancy is moderate because the REIT owns multiple properties.

2. Large Asset Class: Commercial real estate is the largest asset class in the U.S. after stocks and bonds. Investments can be made in apartments, data centers, hotels, offices, warehouses, and more. We classify REITs in fifteen broad categories to fit everyone’s investment strategy.

3. Inflation Hedge- Lease contracts typically include provisions that adjust lease rates to the inflation indexes. When the economy is growing, inflation kicks in. Lease rates often move with inflation. This is especially true for REITs that have short duration leases, such as hotels, apartments, and self-storage. These types of assets have the ability to quickly catch up with the inflation adjustments.

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.