FinancialWiz
Confused about dryer sheets
- Joined
- Jan 7, 2011
- Messages
- 6
I'm a new guy and I found this site by googling "non-traded REIT's. I'm a long term investor off and on of traded REIT's and have done very well with them over the past 12 years. I am also a fan of Lucia's buckets of money strategy but I have been very sceptical of his touting of non-traded REIT's because of their lack of transparently. The reason for my thread here is to give my perspective on traded REIT's. I currently own positions in 5 traded REIT's which I started aquiring during the past 12 months. Capital appreciation has been great along with a good dividend. The issues I hold are Duke Realty (DRE), First Potomic (FPO), National Retail (NNN) Realty Income (O) and HCP INC. (HCP). The average annual yeild is about 5.0% for the group and the dividend for all of them is well covered by the AFFO. The yield may be slightly less than that of the Non-traded issues currently out there but the distribution is a return on capital rather than a return of capital and there is the benefit of liquidity. Also, the traded REIT's represent a hard asset and can serve as a hedge against future inflation. I'm not saying "Non-traded" REIT's aren't a good investment but I don't think their blind risk out weights traded REIT's transparently.
Additionally, I might suggest those of you that are income investors should look at Traded REIT preferred shares. Their yield is very good and the dividends are almost always "cumulative". If the common pays a dividend the preferred must pay their dividend. Therefore, the dividend is not qualified and is taxable at regular income rates. You should hold them in a tax advantaged account (IRA, etc.) Anyone interested in further benefits of preferred's let me know and I'll elucidate. A final word, real estate is a powerful addition to your asset allocation. It increases your overall rate of return and reduces your level of risk over time.
Congratulations - you have picked some good REITs - but pretty much all REITS have done well the last two years as prices were so depressed. IF you know what you're doing you can find Non-traded REITs with dividends covered by AFFO paying 7%. These dividends are almost completely covered from immediate taxation, making an bigger difference between their publicly traded REIT dividend cousins. Don't pay attention to WreckReits.com - it's an anonymous site (that alone should reduce it's credibility). It distorts facts all the time. It's believed to be sponsored by brokers who are not allowed to offer private placements or non-traded REITs, and they need something to 'combat' the popularity of non-traded REITS. An example is their comparing the dividend of a NTR to a 'ponzai scheme'. That is totally off base. REITs are popular with retirees and others who count on a dividend. When a REIT starts up it is in the 'money raising' phase. It may have cash - but doesn't have enough earnings yet to pay dividends out of earnings. Nobody would invest in such a REIT unless the REIT were paying dividends, so they all start out paying a dividend. Of course the dividend starts out as not covered from AFFO. As the REIT matures - my favorites have covered their dividend from FFO within 6-12 months you have no such issue. Many other misconceptions have come from reit-wrecks.com.