All Forum Posts by: Kevin Vandenboss

I think REITs make sense for a lot of RE investors. Mainly because it's an asset class you already understand. I don't like investing in stocks because I don't know enough about the companies and how their business works. I like REITs because I know real estate and I can make more informed investment decisions. 

In regard to returns, my REIT portfolio averages just over a 6% dividend yield and about 10% annual growth in price.

As far as taxes, REITs aren't taxed at the corporate level. Investors pay ordinary income taxes on the dividends. 

I'm in a couple of private REITs, but prefer publicly traded REITs overall. They own some of the greatest real estate assets in existence, get the best lending terms available, and have the most capable management teams. I also like the transparency and the fact that I cash out any amount of my portfolio anytime I want, or invest any amount I want.

Personally, I love REITs. A lot of people just see them as a stock, but they're really not. Yes, most of them are traded publicly so the prices fluctuate with the market, but they're still backed by the hard assets and a lot of them pay out some great dividends.  

Purchasing your own properties is still a better potential investment in most cases. Unless you don't want to hunt down the deals, do the due diligence, and manage the properties. REITs own some of the greatest pieces of real estate in the world, they're managed by the most qualified asset managers out there, and they have the best tenants. 

I think investing in REITs and real estate can go hand-in-hand, though. You can stick income from a rental property into your REIT portfolio to earn passive dividend income while you're saving up for your next down payment. They're liquid, so you can cash them out in a matter of minutes. You just have to be aware of the risk that the prices could drop...

REITs are also a great way for somebody that doesn't have enough cash to buy a property to start investing. My favorite REIT right now is about $30/ share, and there are some others with great upside potential for less. Somebody that only has $100 available to invest can buy a few shares, and transfer whatever extra money they have each week into their brokerage account to build their portfolio. Most of my REITs are paying me a 7% - 10% yield because I bought them at the right price, and the payouts have been increasing. So you might as well build up a portfolio of cash flowing REITs while taking advantage of the knowledge you gain in real estate while you're researching which ones to buy.

Real estate people have an upper hand over stock investors when it comes to REITs. While a stock investor or analyst is focused on the number, the real estate investor can look at the properties the REIT owns, the markets they're in, and have better insight into what the future of that portfolio looks like. There are REITs that investors are running from that I'm snagging up for a great price, and I'm extremely confident that they're going to pay off. On the other hand, there are others that investors are loving that I won't touch.

There's a lot that goes into picking the right REITs, though. Even with a strong portfolio, you want to look closely at the balance sheet, particularly the debt/EBITDA ratio (a good rule of thumb is a ratio of 6.0x or less), the debt maturity schedule, the weighted average lease term, and the FFO payout ratio. The FFO payout ratio will tell you how much of their Funds From Operations they're paying in dividends. If it's above 90% there's a good chance they won't be able to maintain their dividends. I like to see less than 85%, but a lot of other investors like to see less than 80%. 

It's not enough to just see that they're in a strong financial position, though. You also want to make sure you're getting a good deal. Just because a REIT is priced at $60/ share doesn't mean it's worth that.

I own shares in a handful of REITs and do pretty well with them. I believe I have an advantage on them over the typical stock investor that's just using them to diversify their portfolio. 

This advantage is my knowledge and experience in the types of real estate the REIT is investing in. Instead of simply looking at the numbers, I look at the properties and markets they're investing in, the types of tenants, remaining lease terms, etc. I look at them more like real estate investments than stocks.

I mainly buy REITs based on 3 things:

• The price of the stock compared to my estimate of the value of their portfolio. I look for underpriced deals.
• My opinions on the future of the asset types they invest in
• Dividend yield. I buy for the dividend income

I very rarely buy any with a dividend yield less than 5%, unless I'm confident the price and value will go up enough that the cashflow I receive on it will be 7%+ based on what I paid. Most of mine are 7%+. 

I'm usually buying ones that other investors don't see the opportunity in, so the dividend yields are higher. 

So, to answer your question, if you buy high dividend REITs with portfolios you like, you will get income. Mine isn't completely passive because I spend a little time each week looking for press releases from my REITs, as well as others in my watch list. 

My favorite thing about public REITs however, is that they're liquid. When a good investment opportunity pops up that I need cash for, I can sell off however much I need, and have the cash 2 days later. If I'm feeling really confident about the REIT I sold and want to keep my shares, I can just buy it back real quick with margin. (Risky)

If you're looking at REITs, one of my favorites right now is WPC. Their price is down, while their value is up. Their income has grown every year, and their dividends have grown every year. You're likely to see a return from the price increase, plus the yield on your cost will go up every year.

@Sharon Carter Are you still leasing properties for your group home business?

Did you end up using your property as a group home?

I haven't seen any coverage on this from a reputable source. I'm not trying to deny it happened, because I don't know anything about it, but an article with a subheading "karma's a b**ch" obviously isn't concerned with telling the whole story on anything. 

Thank you for the insight @Michael Temple that helps a lot. Exactly why I don't want to be sitting on a house in a market I'm not familiar with. I saw some comps in the area around the price range you gave, so my thought was if somebody could pick this up for $12k it would leave plenty of room for needed repairs. 

@Michael P No typo, $12k. It's in pretty rough shape. I have no interest in the property myself so I would just be trying to pass it along quickly before it costs me any money. 

Because of confidentiality, I'm limited on what information I can give at this moment, so I know there are a lot of variables that would determine if there would be any interest in this specific property or not. Just hypothetical at this moment. 

It's located around the area of Airport Hwy and Fearing Blvd. Doesn't look like the prettiest area, so I assume more of a rental area than a fix and flip area. But I don't know the market.

Roughly 1,500 + SF, 3 bdr, two story on a corner lot. From the exterior photos I have it looks like it would need siding, windows and landscaping now to be presentable, and probably a new roof in the not-too-distant future. It is occupied, so I assume the inside is at least in livable condition. Supposedly updated electrical and plumbing in the last 10 or so years. 

I would want to sell it only to an investor on a land contract for somewhere around $12k with $1,500 or so down. They would be able to inspect the property before purchasing so they wouldn't be going in blind like me. Does it sound like something there could be enough room for somebody to make some money on buying it like this, assuming it's not about to fall over or need a complete remodel?

I'm mostly interested in selling on a land contract since it's really the only way I'll make money on it while selling it for a price I can move it quickly. Also only interested in selling to an investor because I don't want to end up selling it to somebody I'll just have to take it back from in worse condition. 

I appreciate any and all input! Thanks!

@Luke Moore

Glad to see it coming along! Congratulations!

I'm guessing you did an SBA 504? Those tend to take even longer due to how they're funded. Glad you made it through, though! At least if you ever do another one you know what type of information/details they're going to want from you.

I've been through enough of them now that I have a very thorough checklist for putting the loan packet together. I just closed on a deal this week with a 504 and a 7(a) that we were able to get done in 80 days from submitting the loan request to close. Definitely a new record for us!

Congrats again and best of luck on the project! I can't wait to see how it turns out!

@Varinder Kumar Yes, we did one like that a couple of years ago. The purchase price was around $1.1M and they financed an additional $250k for rehab. I feel like it might have been done with a 504 and a 7(a), but a good SBA lender can piece that together to make it work.