6 Things to Know About REITs

REIT

REITA real estate investment trust (REIT) is a publicly traded entity that owns, operates, or finances income-generating real estate. By putting your money into a REIT, you are essentially buying a tiny piece of a portfolio owned by a corporation (or trust). As their portfolio appreciates, the trust pays out dividends to the investors.

Relative to other investment options, REITs are far less time-consuming and labor-intensive and may generate steady income stream for investors. On the flipside, they offer little in the way of capital appreciation. Here’s what you need to know about this investment strategy!

Equity REITs vs Mortgage REITs vs Hybrid REITs

There are three types of REITs: Equity REITs, mortgage REITs, and hybrid REITs. Most REITs are equity REITs, which own and operate income-producing real estate. As its name suggests, mortgage REITs provide financing for income-producing real estate by purchasing or originating mortgages. This model earns income from the net interest margin. Hybrid REITs are a combination of the other two strategies: equity and mortgage REITs.

Publicly traded REITs vs non-traded REITs vs private REITs

A traded REIT trades on a public stock exchange, such as NASDAQ and NYSE. They are regulated by the U.S. Securities and Exchange Commission (SEC). Non-trade REITs are registered with the SEC but don’t trade on public stock exchanges. Though they are less liquid than publicly traded REITs, they tend to be more stable. Private REITs, on the other hand, are not registered with the SEC and don’t trade on a public stock exchange. Private REITs aren’t accessible to most investors.

Dividends

REITs distribute dividends to investors on a monthly basis. As required by law, they must pay 90% of income back to investors. The other 10% can be reinvested into the REIT to buy new holdings.

Fees

There are management fees associated with all REITs. REITs are managed by a board of directors and trustees. It is important to find out who’s behind the management team, their track record, and compensation model. If the compensation model is performance-based, there is an incentive for the team to pick the right investments and strategies.

Taxes

The dividends you earn from REITs are taxable up to the maximum rate of 37%. However, taxpayers may deduct 20% of their dividend income.

Goals

REITs are an accessible investment strategy. You can invest in publicly traded REITs by purchasing shares through brokers, such as Fidelity or TD Ameritrade. You can also buy shares of non-traded REITs through a broker or financial advisor who participates in the non-traded REITs offerings. The SEC has a free search tool that allows you to look up if an investment professional is licensed and registered.

When investing in REITs, be sure to consider your financial goals and how they align with the strategy you want to pursue. Publicly-trade REITs are easier to buy and sell than actual properties, but they are subject to market volatility. The longer you hold on to it, the more time you’ll have to recover from potential dips.

Are you interested in learning more about real estate investing? RLG would love to help you find a suitable investment strategy for your goals! Call us today to learn more!

How to Conduct Due Diligence on Out-of-State Properties

Due diligence

Due diligenceEvery seasoned real estate investor will tell you that performing due diligence is key to making a sound financial investment. If you are adding out-of-state properties to your portfolio, doing an effective due diligence can be all the more challenging. But first, what is due diligence?

In real estate, the period of time known as due diligence is the opportunity to investigate facts about the physical and financial conditions of the property and area the property is located in. Put simply, it is the time to do your homework before deciding to move forward with the purchase.

While the time window is negotiated prior to the execution of the contract, it typically ranges from 14 to 30 days. As for when the clock starts ticking, that will vary from state to state, which is why it’s important to consult with a local real estate expert. In some states, you enter the so-called due diligence period as soon as both parties sign the contract.

Deciding on a time frame will require factoring in the amount of time needed to schedule appointments with inspectors and to review the paperwork such as HOA rules and regulations. Note that, unless negotiated otherwise, all inspections are paid for by the buyer.

We gathered some helpful tips if you are eyeing a property outside of your state:

Talk to the local county assessor: though an exact figure isn’t possible unless the property sells, the county assessor can provide ballpark estimate of the tax values of properties you are considering as well as surrounding homes.

Check pro-forma numbers: make sure to verify every number you are provided, such as insurance, rental values, and taxes. For example, if the property is in a disaster-prone area, this can significantly add to insurance costs.

Use online resources: use online platforms such as Zillow and Google Maps to your advantage. In addition to getting a better grasp of average rental values and asking prices, sources such as Google Street View may give you a good sense of the neighborhood where the property is located. Some websites will also allow you to check prices of nearby homes – just keep in mind that renovations and square footage will all affect the home’s value, so it’s important to compare similar homes.

Inquire about renovations: if the property you are considering needs repairs or a remodel, ask contractors to give you an idea of the scope of work, completion dates, and pricing.

Are you ready to plunge into investing in real estate? RLG has the tools and resources at its disposal to get you on your way and save you time. Call us today to learn more and experience firsthand the dedicated, personalized customer service and undivided attention that RLG has to offer!

Growing Your Real Estate Investment Portfolio

Purchasing real estate is key to earning passive income and financial freedom. As markets and access to capital ebb and flow, adaptability is a critical trait for real estate investors. While there are no hard-and-fast rules to real estate investing, there are a number of tried-and-true ways to grow your portfolio. Let’s take a look at some of these strategies!

  1. Start Wholesaling

If you are new to real estate investing, know that it’s never too late to get your foot in the door. For your first purchase, consider starting with less expensive wholesale properties. Wholesaling is the process through which the wholesaler contracts a home—usually one that is distressed—with a seller, shops that home around to potential buyers, and then assigns the contract to one of them. It is a less risky method for new investors, as it does not require a significant amount of capital to get started. Having a solid list of potential buyers prior to making an initial offer to the seller is a good idea to help mitigate risks.

  1. Leverage Equity

Once you purchase and rehab your first property, the next step is to leverage your equity by either selling the property and reinvesting the cash profit or borrowing money against the equity. There are other financing options for investors looking to fix and flip homes. Some of them include bridge loans, fix-and-flip cash-out refinance, and investment property line of credit. Speak with your mortgage professional to find out what is best for your endeavors.

  1. Get the Word Out

If you are looking to quickly grow your portfolio, you will have to put in the work and reach out to brokers and sellers in your quest for the best deals. By networking with real estate agents and attending real estate auctions, investors will often find undervalued off-market properties that will produce incredible returns. Cold calling potential sellers can be hit-or-miss, but it may be worth a try. If you choose to go down that route, make sure you have a solid call script.

  1. Invest in Rentals

While flipping houses may provide quicker returns on your investment, renting an investment property will generate passive income over a long period of time. You can then use the additional passive income stream to reinvest into your real estate purchases. In addition, your property’s value should appreciate over time as real estate benefits from inflation and the state of the economy.

  1. Hire a Property Manager

As your real estate portfolio continues to grow, so does the amount of time you will need to dedicate to managing the properties. As they begin to scale, many real estate investors will hire a property management team to handle daily operations. This frees up their time to focus on researching, networking, and closing more deals.

Are you ready to plunge into investing in real estate? RLG has the tools and resources at its disposal to get you on your way and not waste a moment of your time. Call us today to learn more and experience firsthand the dedicated, personalized customer service and undivided attention that RLG has to offer!