Author: Joel Teo

Most Investors have no read idea what to do with their money and that’s why fund managers and loads of investment instruments have sprung up to cater to this need by the market for ?return on investment”. Real Estate Investment Trusts or Asset Securitization which is the legal term of art used to describe the phenomenon of convert asset cash streams into tradable securities and selling them to investors.

This article after a short explanation about REITs, reveals two dirty little secrets that Property Developers play on unsuspecting REIT investors.

Asset Securitization as it is known in the legal industry in its Non-Enron form is legitimate due to the lower cost of raising funds. Property Developers take the chance to put their best properties into the REITs at the start as it would be cheaper for them to raise funds when compared to getting loans from the Bank which would increase their debt and reduce the credit rating for the company. These property developers having effectively sold their properties away, then manage the same properties through their management companies and charge fees. They then take the money to develop and purchase other properties and their capital gets bigger and bigger.

What most REIT investors are not aware of is that, some unscrupulous Property Developers start sneaking in their underperforming assets into the REITs so as to get rid of property duds and the investors in the REITs end up getting poorer returns on their investments. This can diminish your returns substantially.

For example, in Singapore which has one of the most thriving REIT markets in Asia, there was talk that some of the worst properties almost being sold into one of the REITs, before someone intervened to stop this trend. Investors should therefore take more than a perfunctory glance at the Annual Reports and Market Announcements concerning the REITs that they are invested in.

Another thing that most investors are unaware of is the basis of valuation stated in most prospectus documents for REITs. The prospectus is this large document that states out the basis of the investment and reasons why you should invest in it and the risk factors that any reasonable investor should note when purchasing units in the REIT.

For example, there was this REIT Company that wanted to list some properties and when one takes a closer look at the basis that the Financial Analysts calculate the potential rental income, its all guesswork. It took the historical rental income and calculated the potential yield for the investor. That’s why investors should remember the adage of past performance is no indicator of future returns and scrutinize the basis of valuation of any investment that they make be it shares, bonds or REITs.

Author: Joel Teo

Real Estate Investment Financing is simply industry jargon for a real estate investment loan. In a bad property market where rental yields are low, the most dreaded word that you can say to a real estate investor is negative equity. So what is negative equity? It is a situation which arises when the foreclosed value of your property is less than the price that you paid for it and in certain states like in New York, the mortgagee (the bank) can then bring a deficiency action against the owner to reclaim the difference.

This article will therefore go on to examine three ways to prevent a negative equity situation in the longer term.

The first key to preventing yourself from a negative equity situation is always look at the downside of any investment and analyze the rental yield of your property in a bad year. In real estate investment terms, this means that you look at the average rental yields of your property in the lean years to see if it drops below your monthly instalment for your mortgage repayment. I hate guessing, so the best way is to go to a real estate agent and ask them to generate a graph and then do your own analysis to see if your property rental would go below the amount that you are paying for your monthly mortgage instalment.

The second factor to consider is the price that you pay and the monthly instalments. Many people during a property boom, tend to overpay for their property and as a result, when the economy turns around, the changes of a negative equity situation arising is quite possible. Excessive exuberance in the real estate market like in the stock market can make you more likely to buy the property at an all time high.

The third factor is the rebound of a sector. Spend some time looking at statistical data. Which property sectors rebound more quickly than others in response to a good market and economy? By choosing your property investment right, even if the market is bad, your chances of a turnaround are better than the national average. This is also an application of the common adage of ?making the best of a bad situation” in real estate investing.

In conclusion, by spending some time to consider the three above contributing factors and spending some time to analyze a property investment can save you much heartache later and prevent you from falling into a negative equity Real Estate Investment Financing situation.

Author: Joel Teo

The Common Law of property states that ownership of real estate is ownership of a bundle of rights. I never realised the full significance of the preceding phrase until I realised the importance of the other interests in land other than the obvious real estate related rights in the land. This article will highlight three different interests in property for us to consider in real estate investment when we next examine our property investments.

Firstly, spend some time considering the water rights. In farming and agricultural land, water is often a good resource. Imagine that you own vacant property on some land in the countryside, one thing that many landowners would consider doing is to give a licence to the adjourning farmers to gain the use of the water on the vacant land either through a well or some irrigation method. Always get a licensed water engineer to consider your water table and the relevant rules imposed by the state on the supply of water and get an attorney to fix the contract.

Secondly, assuming that you own property that have minerals such as oil or other profitable minerals under your property, you can sell the right to someone who is involved in the oil business. You want to learn all you can about the cost of selling such rights and possibly retain a percentage of all oil revenues. Get assistance in valuation and deal structuring from oil and gas attorneys and brokers who have a good feel of the market. You would note that some bankers set up oil trusts to invest in such properties and the rich invest in them to earn a monthly income and you can take advantage of such an investment opportunity if you find an oil field property or own one.

Thirdly, air rights are a valuable asset that you can sell over your property. In busy cities, where land is scarce, sometimes all the developer needs is the airspace over your present property to build over. For instance if you own a historical building and it cannot be demolished or if the land below is a vital installation to the city, then building over the real estate may be the only solution. Sometimes developers want to have a certain amount of space to sell so they may want to build over your property so as to meet that criteria or build a ring of hotel properties in an area. An example of a good use of air rights was seen when Donald Trump built his skyscraper hotel over the Grand Central Station in New York.

In conclusion, take a closer look at the next real estate investment property that you purchase today and examine it if there are any additional rights that you can sell. Making money in real estate requires a creative mind and business acumen. Learn all you can about real estate investment today and start looking for your next real estate bargain.