Owning a home Trust -Two Dirty Little Secrets
Most Investors have no read idea what to do with their cash which is the reason fund managers and plenty of investment instruments have sprouted to appeal to this need by the marketplace for "return on investment". Real Estate Investment Trusts or Asset Securitization the actual legal term of art utilized to describe the phenomenon of convert asset cash streams into tradable securities and selling these phones investors.
This post after having a short explanation about REITs, reveals two dirty little secrets that Property Developers use on unsuspecting REIT investors.
Asset Securitization as it is termed from the legal industry in the Non-Enron form is legitimate as a result of lower cost of raising funds. Property Developers take the possiblity to placed their best properties into the singapore reits at the start since it would be cheaper to allow them to raise funds when compared with getting loans in the Bank which will enhance their debt reducing the financing rating for the company. These property developers having effectively sold their properties away, then manage the identical properties through their management companies and charge fees. They take the money to formulate and purchase other properties in addition to their capital gets bigger.
What most REIT investors don't have knowledge of is, some unscrupulous Property Developers start sneaking in their underperforming assets to the REITs to gain rid of property duds and the investors from the REITs end up having poorer returns on their investments. This could diminish your returns substantially.
For example, in Singapore containing just about the most thriving REIT markets in Asia, there was clearly talk that a number of the worst properties almost on the market into one of many REITs, before someone intervened to avoid this trend. Investors should therefore take greater perfunctory glance at the Annual Reports and Market Announcements regarding the REITs they are purchased.
One other thing that most investors don't know will be the basis of valuation produced in most prospectus documents for REITs. The prospectus is this large document that states out the foundation a purchase and reasons why you must spend money on it along with the risk factors that any reasonable investor should note when buying units from the REIT.
As an example, there was clearly this REIT Company that wanted to list some properties and when one requires a closer look at the basis the Financial Analysts calculate the possible rental income, its all guesswork. It took the historical rental income and calculated the possibility yield to the investor. That's why investors should can remember the adage of past performance is not any indicator of future returns and scrutinize the cornerstone of valuation from a investment they make whether it is shares, bonds or REITs.
In conclusion, is the profit safe hands? Are you currently purchasing a REIT today containing ancient property rental return valuations or do you think you're buying right into a REIT which has a few good properties in the stable along with the rest being duds? Take active power over your money today and you'll start seeing more visible returns on your investment.
