Sensible investors know that portfolios benefit from holding a wide variety of asset types because diversification lowers risk. Many experts believe that portfolios should hold up to 20% of their assets in real estate—distinct from ownership of your own home. That begs the question — how should you invest in real estate? In this overview, we’ll describe your options for … [Read more...] about The Nine Ways to Invest in Real Estate
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REIT Net Asset Value
One of the most important questions facing prospective REIT investors is whether the units are fairly priced. REITs present special challenges in this regard compared to regular corporations. That’s because REITs are essentially a collection of real estate properties that throw off rental income, making them closer to bond mutual funds than to stock funds. But bond values are … [Read more...] about REIT Net Asset Value
REIT Leverage Metrics
The extent to which a REIT uses debt efficiently is a key factor when investors analyze risk/reward tradeoffs. Debt used wisely increases returns and helps boost growth. Underutilize debt and a REIT will fail to maximize its returns and growth potential. Overutilize debt and a REIT risks a reduced credit rating, thereby increasing the cost of capital and the risk insolvency. In … [Read more...] about REIT Leverage Metrics
Free Cash Flow and Enterprise Value
We previously wrote about a very important pair of REIT metrics, funds from operations (FFO) and adjusted funds from operations (AFFO). REITs report AFFO as a measure of cash available for dividends to unitholders. The definitions of these two measures are: FFO = Net Income + Depreciation + Amortization + Gains/Losses on Property SalesAFFO = FFO – Recurring Capital … [Read more...] about Free Cash Flow and Enterprise Value
REITs, Business Cycles and Rising Interest Rates
Interest rate increases do not doom REITs to losses or underperformance, as long as they are gradual and anticipated. Real estate investment trusts (REITs) are thought to be sensitive creatures – they feel the impacts of changes in interest rates and the business cycle in profound ways. This sensitivity stems from the fact that REITs are high-yield instruments, in that most … [Read more...] about REITs, Business Cycles and Rising Interest Rates