Are these numbers all-in numbers, including sale projections averaged over the hold? Are they average over a hold period or, I am guessing, your projected return rate once a deal is stabilized?
Are these numbers all-in numbers, including sale projections averaged over the hold? Are they average over a hold period or, I am guessing, your projected return rate once a deal is stabilized?
Total ROI is usually figured as a annual compounded %
In a syndication for a hard assets like and apartment bldg. I would want a 15% projected IRR with a min 7-9% preferred return.
these are realistic targets and goals. People should take note of this as when you start seeing 25% - 50% variances from the the risk factor goes up significantly.
In a syndication for a hard assets like and apartment bldg. I would want a 15% projected IRR with a min 7-9% preferred return.
these are realistic targets and goals. People should take note of this as when you start seeing 25% - 50% variances from the the risk factor goes up significantly.
I’ve been taking a “hard” look recently at some selected EQUITY REITs. There are a number of solid REITs - i.e. Class A assets, 20% + discount to NAV, 6-12 X FFO, 6% - 12% dividend yield, LTV 20 - 50%. My gut feeling is that a portfolio of 10 - 20 REITs, dividend yield 6% + and internal growth 4- 5%, could yield a low double digit return over the long term. Considering the greater liquidity, professional management, greater disclosure and compliance, opportunity for management to borrow at rates much lower than private equity real estate, and more relevant and reliable information available, as well as diversification, it looks VERY attractive. I’ve invested only about10% of my portfolio in REITs, but am looking at adding to my holdings at “opportune” times. if this plays out as I think, I could ultimately have 50% of my real estate exposure thru REITs.
Running a couple of private real estate funds, this is kind of like recommending people invest with the “competition”. But there is no MORTGAGE REIT that is a substitute for a portfolio of private loans. In the U.S. there are 199 publicly traded REITS - 159 are equity REITs while 40 are mortgage REITs. ALL the mortgage REITs utilize VERY DANGEROUS amounts of leverage (8 X or more their equity) to “gig” yield to investors. The history of mortgage REITs is that management is able to walk the tightrope for a while and provide double digit yields to investors - but at some point they make a wrong guess on interest rate curve and lose 30 - 90% of their equity. I stay away from mortgage REITs.
@Don Konipol Very interesting perspective on REITs. When I looked at them Long ago it seemed returns over the long run were about like the stock market in general. I figured why have the risk of real estate for average returns. I also looked at size as not a positive but a negative.
I can easily beat average returns substantially on a particular deal. Obviously my type of deal making can only scale so far. So now that I have built some wealth, your analysis looks very intriguing.
@Don Konipol Very interesting perspective on REITs. When I looked at them Long ago it seemed returns over the long run were about like the stock market in general. I figured why have the risk of real estate for average returns. I also looked at size as not a positive but a negative.
I can easily beat average returns substantially on a particular deal. Obviously my type of deal making can only scall so far. So now that I have built some wealth, your analysis looks very intriguing.
Ned, your unique knowledge, experience and expertise in the tax sale Maryland market will always lead to higher returns than a passive real estate investment. But the two issues as I see them are (1)how much money can you put to work in a specialty investment arena and (2) how much time and effort do you want to devote to it. When I exam my own situation I realize that my individual real estate and mortgage note investments are made up of two parts- the return on my capital and the return on my time. Since we syndicate our bigger deals or invest thru our fund, we are utilizing the capital of about 80 other investors, so it’s relatively easy for us to recognize how much of our income is from our personal work effort and how much is from passive investing.
As I get older the excitement/fulfillment of searching, identifying, analyzing, negotiating, managing, etc a real estate “deal” has become greatly lessened. And looking at what my return would be as a passive investor in private partnerships vs investing in selective REITs (heavy analysis still required) the differential doesn’t seem to be worth the greater effort, higher risk, and potential problems for my heirs when I pass away. I’ll probably always (hopefully I’ll be able to) do direct investment in property/notes when they come across my radar. However I believe we are in a market where there are more deals to be had through NAV discounts in REITs than in the (imo) ridiculously low cap rates that much commercial property is selling for.
There's some great information shared here. For anyone looking to invest passively, pay attention to the returns that are mentioned by individuals like Don and Chris who have track record of raising capital for funds. Track record means they've done right by their investors. They aren't promoting 20%-30% returns.
@Don Konipol your last post suggest we are at similar points in our careers and I feel very much the same way.
I also agree that cap rates are still way too low and above what Warren Buffet would call the property's call intrinsic value.
Question for you. Historically do REITS sell at below NAV and does that vary over time? Where are we now for NAV compared to historic values for REITS?
@Don Konipol your last post suggest we are at similar points in our careers and I feel very much the same way.
I also agree that cap rates are still way too low and above what Warren Buffet would call the property's call intrinsic value.
Question for you. Historically do REITS sell at below NAV and does that vary over time? Where are we now for NAV compared to historic values for REITS?
Thanks
Ned, I’m still ‘learning” when it comes to REITs. I was heavily involved in this arena in the late 1970s until the mid 1980s, and again somewhat involved immediately after the 2009 debacle. (I bought at the ‘right” time but sold WAY too early and left a LOT of profit on the table).
Since “REITs” are actually a form of a C corp that doesn’t pay tax at the corporate level, and must have 75% of its assets invested in real estate, and since the interpretation of real estate has expanded significantly over the years, REITs cover a wide variety of properties, business strategies, methodologies, and management motivations.
The short answer to your question is that theoretically, the higher the growth in FFO per share the REIT is able to generate from Organic growth, and not for example because they’re able to refinance their debt at a lower rate, the higher the multiple of FFO they command, and usually the closer to or amount over NAV they sell for.
Although I utilize the advice of two analytical firms both specializing in REITs, I ultimately make my own decisions as to what to invest in me how much. However, my investments line up pretty close with the “model portfolios” these two advisors publish, with the exception that if the stock isn’t at least 20% below NAV I won’t invest; I prefer REITs that easily cover their dividends with their earnings from rents and pay 6% or more, are internally managed where the top corporate players own a significant amount of stock, and where their property holdings can be easily valued (not so easy with many “speciality” REITs. I also stay away from REITs heavily invested in a long term declining market (office buildings) and a market that is overbuilt to where most players struggle to operate profitably(hotels).
The portfolio I’ve put together in the last three months now consists of 13 stocks - 11 REITs and two real estate type investment companies that have chosen NOT to be taxed as a REIT. The price I paid on average is 65% of the NAV; my dividend yield on cost average is 7.3%, the price paid on average was 11.5 times AFFO. The breakout areas types are
Residential 24% Health Care 16% Industrial 16% Asset Managers/ Infrastructure Debt 11% Timberland 8% Diversified 8% Ski Resorts 8% Cannabis 8% Net Lease 3%
I am a preferred return investor. For those that don't know what that means it's the return I'm getting paid today. IRR returns are what you get paid over the life of the project. Most IRR returns are advertised at 15%-34% (value add, but choose your pick from the hundreds of facebook ads) They look great but are only projections. The best preferred return I have in my portfolio is a 12% rate of return.
Here are my expectations:
Mortgage notes: 12%
Private equity lending: 10%
NNN investing: 7%
IRR returns on value add projects 20%. (I haven't done one of these yet)
I am a preferred return investor. For those that don't know what that means it's the return I'm getting paid today. IRR returns are what you get paid over the life of the project. Most IRR returns are advertised at 15%-34% (value add, but choose your pick from the hundreds of facebook ads) They look great but are only projections. The best preferred return I have in my portfolio is a 12% rate of return.
Here are my expectations:
Mortgage notes: 12%
Private equity lending: 10%
NNN investing: 7%
IRR returns on value add projects 20%. (I haven't done one of these yet)
Thanks John. I think our terminology differs a little, but I understand your parameters. We both aim for the higher return end of each market segment, but well within reasonable risk parameters. Most of the time the difference between a 9% return and an 11.5% return isn’t risk; it’s better analysis, lower asset management fees, and more efficient acquisition/management operations.
I never thought about short term commercial mortgage notes before as an investor, but maybe something to consider in the real estate portfolio. Are there syndications for Hard Money Lending for Residential as well?
I never thought about short term commercial mortgage notes before as an investor, but maybe something to consider in the real estate portfolio. Are there syndications for Hard Money Lending for Residential as well?
Yes there are syndications for hard money lending on residential. Most have shifted to commercial but I know a guy putting one together...
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