Investing in Real Estate Investment Trusts (REITs) is one of the best ways for investors to receive consistent and relatively acceptable returns on their investment. REITs have become one of the best investment options given the lower returns on bonds with the prevailing low base interest rates. Most REITs offer the opportunity to get annual dividends as well as capital gains. The best thing about these investments is that the income accrued to REITs is usually tax free and hence investors can claim higher returns. Investors looking to take a step into the realm of Real Estate Investment Trusts should first understand that identifying the right type of trust and their management strategies is essential in guaranteeing the best investment experience.
How REITs Work
REITs accept money from various investors and then use the money to buy real estate properties. These properties are then restored and subsequently rented out to willing businesses and individuals depending on the focus of the specific REIT. Investors then receive dividends from the rental income collected as well as proceeds from property sales.
Dealing specifically in single family rental homes, we employ an elaborate mission statement to communicate our strategy to all would be investors. We understand that it is vital for us as a REIT to offer confidence to potential investors by communicating exactly how we aim to turn their investment into a success.
It is important to note that this niche has come about as a result of the inability of families who lost their homes to foreclosures to acquire mortgages for new homes. It has also been observed that since the housing market collapse, more and more residents are opting to rent rather than seek mortgages to buy property.
Our mission statement partly reads “We are focused on the acquisition and management of single-family properties in select communities nationwide.
Our primary strategy is to acquire, restore, lease and manage single-family homes as well-maintained investment properties to generate attractive risk-adjusted returns over the long-term…incorporating extensive research, disciplined acquisition criteria, seasoned personnel…”
Below we will look at what this mission statement means to would be investors, and most importantly in guiding our day to day operations.
One of the main problems when it comes to REITs in single family rental homes is identifying the best cities to acquire property in as well as the best properties to acquire.
Location of Properties
Rental properties tend to be in high demand in cities where the supply for single family homes is lower than the supply. In such cases, the property prices tend to be restrictive to potential home buyers. These buyers are then willing to rent available properties as an alternative. Cities with high population growth figures offer the best opportunities, since housing demand is higher when compared to the supply. It is up to our seasoned personnel to find these properties after conducting extensive research in the cities before any acquisitions are made. This ensures that our portfolio only covers markets with high demand for rental properties. Such markets also present the opportunity for value appreciation for acquired properties.
Since single family homes can be dispersed over a wide geographical area it is worthwhile to consider the implication this has on the appeal of the property to residents and home seekers. For instance, where a REIT operating in our niche overstretches their reach and acquires too many single family homes in a very short period, it may find it hard to fill them all with tenants as soon as possible. Vacant properties sitting idle over extended periods of time especially in markets where property values are not growing substantially can be a drain on valuable resources. Abiding by our disciplined acquisition criteria means that all properties are only acquired if they offer value to residents and hence can be easily filled in the least time.
The real estate market has gone through changes since the credit crisis some years back. People are becoming more and more reluctant to seek mortgages for home acquisitions due to the fear of losing their investment to foreclosures. It is also important to note that property sellers are inclined to sell to institutional buyers as they tend to offer cash for the properties as compared to individual buyers who rely on financing. These factors are coming together to make single family home rentals more popular. However only properly organized REITs can offer the best investment opportunities to investors.
Latest posts by American Housing Income (see all)
- How Does Our Mission Statement Streamline Our Operation? - March 29, 2015
- Balancing Value to Our Investors and Tenants As Well - March 22, 2015
- How We Attain Risk Adjusted Return as a REIT - February 15, 2015