Investing In Real Estate Securities for High Yield

| Posted: 16-05-2007 | Comments: 0 | Views: 8 | Rating: (53)

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Direct real estate investing means direct ownership of properties. If the properties are apartments, single-family homes, office buildings, retail centers or warehouses that are income producing, the investors are expected to monitor daily management of the property.

Whenever property management is outsourced, the investors give a important part of their returns to management companies. Moreover, property managers should be employed, but the major decisions like capital improvement, repairs, expenditure, sale, setting rent rates and the timing of sales, which affect the property should be done by investors.

If these investors are rehabbers or flippers, real estates turn more into a business than investments. There are many successful realty investors who work in the realty business as real estate operators.

There are many who would like to seize potential capital appreciation of investments and the high yields, but want to avoid the time commitment and management hassles in direct property ownerships. On the other hand, there are some who are retired and on the look out for opportunities in the stock markets. In both cases, they can opt for real-estate investments.

Types of Real Estate Securities

REIT

Real Estate Investment Trusts or REIT are companies, which operate, manage and own realty that are known for being income producing. These are organized and whatever income is produced is taxed at the level of the investor only once. According to the law, REITs should pay a minimal 90% of their net income as dividends to the shareholders. Therefore Real Estate Investment Trusts are high yield vehicles which offer prospects for capital appreciation.

At present, there are approximately 150 openly traded REITs. The shares of these REITs have been listed on NASDAQ, NYSE or ASE. REIT basically specializes according to the region and the type of property (apartments, malls, office buildings, hotels, warehouses, etc). An investor could, in the case of ownership of high quality real property, professional management, and is also expecting dividend yields in the 5-8% range and an opportunity for a long-term capital appreciation.
Real Estate Mutual Funds

More than 100 Real estate Mutual Funds exist. Many of these invest in selective portfolios of REIT. There are others who choose to invest in, REIT as well as other openly traded companies, which have real estate ownership and realty developments. Real estate mutual funds usually offer professional management diversification, and high dividend yields.

However, investors end up paying expenses and management fees at two levels. One of these sets being the REIT management and the other being the management fees of 1-2%, that are additionally paid to managers of the mutual funds.

Real Estate Limited Partnerships

Limited Partnerships are another way of investing in real estate. This is done without incurring any liability, other than the amount of investment. However, the investors can still enjoy benefits of tax deduction and appreciation for total value of the property. Developers and landlords for buying, building or rehabilitating rental housing projects can use limited partnerships by using others money.

Since there is a high degree of risk involvement, investors in Real Estate Limited Partnerships look out for earning 20% + yearly, on their invested capitals.

High Yield Private Mortgage Notes

Professional realty investors use High Yield Private Mortgage Notes for rehabilitation, equity cash or acquisition out of commercial and residential properties. Investors can acquire more than of 12-14% market returns in first trust deed positions. The second trust deed positions have 15-18% returns. These types of loans are generally offered for one-year duration and provide monthly income with interest only payments.

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Investing In Real Estate Securities for High Yield

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