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Real Estate Investments

• Commercial Real Estate Investments
Diversify with Real Estate:
Investing in non-traded real estate allows investors the opportunity to invest in an alternative that generally has little to no correlation to the financial markets and typically delivers durable income with asset appreciation potential.   Because the non-traded real estate investments do not directly correlate with movements in the stock and bond markets, these real estate investments may help stabilize a diverse asset selection strategy.

Conversely, investing in most publicly traded real estate investments may offer diversification to a portfolio[1], it does not lower the correlation of the overall portfolio or offer a means of stabilization. Because publicly traded real estate investments are correlated to the financial markets, they tend to move in unison.  

However, the upside to a publicly traded real estate investment is the ability to liquidate your investment at any given time.
The two most commonly utilized real estate investments in an investor’s portfolio is the Real Estate Investment Trust (REIT) and the real estate mutual fund.

• What is a REIT?

Real Estate Investment Trusts (REITs) are corporations or trusts that pool the capital they raise by selling shares of common stock to invest in income-producing real estate or, less commonly, mortgages on real estate.  

REITs may be traded (available on a national exchange) or non-traded (not listed on any exchange and has limited liquidity). Both types of REITs are required to pay out at least 90% of their taxable income to shareholders to maintain their status as exempt from federal corporate income taxes.

• Basics of a non-traded REIT:


A non-traded REIT is a direct investment that uses the capital it raises from retail investors to purchased and manage income-producing properties or, in some cases, mortgages on properties. A REIT’s managers seek to produce a steady stream of revenue that it pays out as distributions to its investors, who are shareholders of the REIT.

A non-traded REIT may invest in a variety of property types, including but not limited to: office or retail space, multi-family housing, industrial property, leisure, healthcare facilities, or a combination of property types. It may focus on a subtype within a larger property type or invest across several types. Similarly, it may concentrate its investments in a limited geographic region or invest nationwide.

The shares of a non-traded REIT are not listed on any exchange, and there is no readily available resale market, making these shares essentially illiquid. Investors should plan to hold these non-traded securities through the estimated life span of the REIT, typically up to seven to ten years, until a planned liquidity event that is designed to return capital and potential capital appreciation to the shareholders.

• Basics of a publicly traded REIT:

From a legal and operations standpoint, there is little that separates non-traded and traded REITs. From an investment perspective, however, they can be quite different. Greater price volatility, generally lower distribution yields, and fluctuating price in relation to Net Asset Value differentiate traded REITs from non-traded REITs. That is, traded REITs have characteristics of both non-traded real estate investments and general equities investments.

As a result of being traded on a public market, traded REITs have historically tended to exhibit much of the price volatility observed in the broader equity markets. Depending on the time period, listed equity REITs can have high correlations with the stock market, thus performing more lie a sector allocation as opposed to a true asset allocation to real estate.

The distribution yields paid by traded REITs vary with not only the health and stability of the REIT itself, based on financials, but also its ever-moving stock price.   Historically, traded REIT yields have averaged several percentage points lower than non-traded REITs, but this relationship is highly volatile due to the movement in traded REIT pricing. In contrast, stability of distributions and relatively high yields (industry average is a distribution of 6% per year with a special distribution to ensure that 90% of the income is returned to shareholders) are common with non-traded REITs.

Another unique feature of a traded REIT is the likelihood that their market price is at either a premium or a discount to the actual NAV. This means an investor may overpay or underpay for shares of the REIT stock in relation to the value of the underlying asset portfolio.   It is not rational to believe that the value of the real estate of the underlying REIT changes as frequently as day-by-day. Instead, what is being reflected on a day-by-day basis is determined jointly by the underlying portfolio values and capital market demand for the REIT investments.

More information about REITs can be found at www.REIT.com.

• Which investment is right for me?


The illiquidity of non-traded REITs may make them unsuitable investments for some individual investors, especially those who have smaller portfolios, have taken on excess risk, or need access to their investment capital. For these types of investors, the traded REITs may be a suitable option for gaining exposure to the investment real estate.

However, for investors who have significant equity market exposure already, overweighting traded equity REITs may not provide the risk-reducing diversification benefits they are seeking. If illiquid investments are suitable, then non-traded REITs may be an appropriate option.

Other factors that should be considered are the fees/costs associated with traded and non-traded REITs, the overall investment objective of the investment, are there minimum investment requirements, the investors risk tolerance and the investors liquidity needs[2].

The best way to determine if an investment in real estate is suitable for you is to contact us today. Together we can explore your individual financial profile and determine if the addition of a real estate investment to your portfolio is right for you.
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Footnotes:
[1] Publicly traded real estate investments can offer the following diversification factors to an investment portfolio by offering exposure to a different asset class (real estate) geographic locations, business risk, financial risk (amount of leverage utilized) the following
[2] This is not an exhaustive list of the factors to be considered when determining whether a non-traded REIT versus a traded REIT is a suitable investment for you.
Disclosure:
Securities offered through Titan Securities, member FINRA|SIPC. Titan Securities is a registered Broker/Dealer.
Walt Parker and the registered persons associated with Investing Makes Me Sick.com are all licensed representatives of Titan Securities, doing business under the name of Investing Makes Me Sick.com. Investingmakesmesick.com and Titan Securities are not affiliated.
Investments are subject to suitability. Risk, fees and taxes may apply. Investment products are not FDIC insured, have no bank guarantee, and may lose value. Investments may contain a high degree of risk, may be considered speculative, and may result in the entire loss of the amount invested. Investments may incur substantial fees and expenses which are borne by the investor. Read prospectus carefully before investing. Investing Makes Me Sick.com nor Titan Securities offers tax advice. Clients should consult a professional tax advisor for their tax needs.
When reviewing a possible investment into a real estate investment, investors should carefully review and read the prospectus in its entirety, paying close attention to the section entitled Risk Factors.  Investing in real estate involves significant risk and is not suitable for all investors. The risks that could impact the value of an investment in real estate include, but are not limited to: local property supply and demand conditions, tenants’ inability to pay rent, tenant turnover, inflation and other increases in operating costs, adverse changes in laws and regulations, relative illiquidity of real estate investments, changing market demographics, acts of God such as earthquakes floods or other uninsured losses, interest rate fluctuations and availability of financing.

Investments involve a high degree of risk, may be considered speculative, and may result in the entire loss of the amount invested. Investments incur substantial fees and expenses which are borne by the investor.

Contact:
Call: 972-463-3833
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