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Talking Real Estate Part 1 REITs

Updated: Aug 16, 2022

Welcome to the Redfish, Healthy, Wealthy, and Wise podcast. Our focus is to deliver information that helps you become healthy, wealthy, and wise. This podcast is sponsored by Redfish Capital Management, the views and opinions expressed here and do not necessarily represent the views and opinions of SCF securities, Inc, or any SCF related entity. This material is for general information only and is not intended [00:00:30] to provide specific advice or recommendations for any individual securities offer through SCF securities, Inc. Member FINRA, S I P C investment advisory services offered through SCF investment advisories Inc office at 1 55 east Shaw in Fresno, California, SCF securities, Inc, and Redfish Capital Management are independently owned and operated. SCF is not associated with other podcasts. And the messages contained within. Brad [00:01:00] Murrill and Redfish Capital does not offer legal or tax advice. This material is not intended to replace the advice of a qualified tax advisor or attorney please consult legal or tax professionals for specific information regarding your individual situation now for your host, Brad Murrill.

All right, everybody. Hello and welcome back to the Redfish, Healthy, Wealthy and Wise podcast. My name is Brad Murrill, and I am excited to be coming to you today with, uh, something a little different. I'm gonna do a new series, and this is gonna be a series of three, possibly four podcasts that are all gonna be centered around investing in real estate. And so I'm gonna break up these, this series, if you will, into one today's discussion where I'm simply talking about how to invest in real estate, uh, res R E I T S. I'm gonna break down res and kind of how they operate and then, uh, finally how it is that you can invest in them. What kinds you should look at cetera, cetera. Uh, from there, I'm really looking forward to bringing in a close friend of mine. His name is Craig Bunn and Craig operates a pretty large industrial, uh, company here in Houston, where they focus on painting it's bunter and painting.

But what Craig has also been doing these last several years is something that a lot of my clients, uh, let's say dabble in, and that is flipping houses and Craig is really good at it. And he's got a really good eye for finding, um, what is a value in a home to get in there and then fix it up, which is really tough in today's real estate and Mar market. Um, and then to be able to sell it at a profit. So I'm gonna have Craig come in here. We're gonna talk about that for those of you who enjoy doing that, or have considered doing that. I know a lot of people, uh, also retire and from their regular nine to five job and they do that to make extra income. So we're gonna talk about the ins and outs of that, and then I'm gonna have another very close friend of mine, Whitney snow come into the office and Whitney is a realtor.

I believe I've had her on the show before. And, um, so Whitney's a, a successful, uh, realtor here in the Houston area. And there's so many people that are constantly selling and buying a home. And in these really different times, she's gonna talk to us about what you as a seller can be doing to maximize the profit that you get from your home. Um, it is not uncommon for her to list a home and then open it up for bids and to get, you know, 10, 15, 20 contracts on a home, and then sitting down with the homeowner and say, okay, here's what we have. Here's the best one here's looking at. 'em. So what she has really developed is, is a keen eye for being able to make sure that her clients are getting the most out of their particular home in this particular environment. And so I'm really excited about the civil series.

Um, a lot of us, uh, for, for many, many people in the United States, their home is their largest asset. And obviously as somebody who is in, uh, asset management, we have to take that into consideration when we're drawing up a financial plan for someone. So today we're gonna focus on real estate investing. And so that means we're gonna talk about res R E I T S for those of you who are not familiar with the asset class stands for real estate investment trust. So basically what a real estate investment trust is, is an entity that owns several properties and bundles them together. And then by law under this particular bundle that was set up, I believe it was 1960. They have to pay out 90% of the revenues that are generated by the tenants in the form of a dividend. And they can pay that out quarterly or they pay, you know, it it's an annual dividend, but it, but it's typically paid out quarterly.

And so the, the yields on rates are often higher than what you'll see in the stock market. So we know now the structure, so it's a pool of real estate assets where the tenants are paying the landlord. The pool is the landlord. They are then taking all of that money and must pay out at least 90% to you. The shareholder who owns the REIT. Now, why do people want to own REITs as a part of their stock portfolio? Well, for number one, we know, and most of us do know that real estate has been a very good performing asset. Something to hold in your portfolio, that's done well over time, over the last 25 years. So we went, I went back and I was looking at the, the website by the way, is NARI it's N a R E I T. The national association of real estate investment trusts.

And they have a dearth of information on everything real estate. And as far as a re, not just real estate, but REITs in general are concerned. They are a fantastic website. If you wanted to go and get, uh, kind of more in detail into how REITs work, but over the last 25 years, according to the narrate site, if you look at the publicly traded rates, okay, those that trade on the stock exchanges, they have annualized 10.2%, 10.2%. That is an excellent return. The average yield on all of these together. If you lumped them all together and averaged out the yield, it would be 2.9%. So the 10.2 is the 2.9 is in the 10.2, but at the end of the year, investors returned 10.2% annualized on that money. So let's compare it to the stock market. The Russell 1000, which is the largest 1000 stocks that trade returned 9.96.

Over that same time period, the Russell 2000, the small caps and the mid caps returned 9.3. And then if you wanted to compare it to the us bond aggregate index, uh, that returned 5.14. So it it's, you, you often hear us talking about allocation and being properly allocated, uh, when you come in and meet with us or when we're meeting with clients or when we're talking to you on the phone. So you want to have some money in various stocks, which of course need to be allocated. We're not talking about that today. It's always good to have some in fixed income, some kind of bond to even out the ups and downs, even though lately there's been more up and downs in the bond market. And then real estate is another sector that you can have, which will further allocate your money because it is not correlated by not correlated means it doesn't typically trade in the same direction as the stock market.