When it comes to investment choices, the hardest part seems to be choosing which options to actually, well, choose. You’ve got to gauge how much of risk you can take on, and what your investment horizon looks like.
Today, we’ll take a look at an option that allows you to diversify your portfolio while adding a bedrock of stability.
REITs—aka real estate stocks—are ideal targets for investors who want a steady stream of income. By IRS law, REITs are required to pay out 90% of its earnings in dividends—great for the income investor.
Although there are various REITs (pronounced “reet”), the variety might confuse a regular investor. Here’s where investing in REIT ETFs (exchange-traded funds) can almost save a passive investor.
The REIT ETF…
An ETF is a pooled investment vehicle and offers diversified exposure to investors across asset classes. Investors can buy ETF shares that represent a proportional interest in the pooled assets.
Here are four REIT ETFs with a dividend yield of 4-8%.
REITs have historically been a high-yielding asset class compared to standard stocks on the Standard & Poor. KBWY capitalize on this by targeting REITs with high dividends, allowing this ETF to pay out a generous 7.2% a year.
Its top holdings include Washington Prime Group [WPG], Government Properties Income Trust [GOV], New Senior Investment Group [SNR], Global Net Lease [GNL] and Whitestone REIT [WSR].
Market cap: $252.86 M
Expense ratio: 0.35% ($35 for every $10,000 invested)
VNQ offers wide exposure to property trusts in the United States and covers over 65% of the entire US REIT market value. Due to this insane diversification of stable assets, the dividend is a little lower—but it’s well worth it for the investor who wants to sleep at night.
Top holdings include American Tower [AMT], New York-based Simon Property Group [SPG], Crown Castle International [CCI], Prologis [PLD] and Equinix [EQIX]—a combined total of close to $250 B in market cap, which altogether accounts for 22.4% of the ETF.
Market cap: 33 B
Expense ratio: a ridiculous low 0.12% ($12 for every $10,000 invested)
The MORT ETF invests in mortgage REITs. In the case of mortgage REITs, firms borrow capital to invest in MBS (mortgage-backed securities) or mortgages. These REITs make money off the interest rate spread.
The top holdings include Annaly Capital Management [NLY], AGNC Investment [AGNC], Two Harbors Investment [TWO], New Residential Investment [NRZ] and Starwood Property Trust [STWD] that account for 43% of the ETF.
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At trillions of dollars, it’s no secret that the real estate market has been one of primary resources for the world’s wealthy to pad their accounts.
But contrary to popular opinion, real estate is still a desirable asset class for entrepreneurs with smaller bank accounts. Here are five ways to fund your first real estate investment—even if you’re low on cash.
1. Know Your Numbers
Remember, while property values fluctuate, your rental income is locked into a leasing agreement—and so is your valuation.
That means, as long as the numbers work, the market can do what it wants. Asset-based lenders (B2R Finance is one) lend primarily on the cash flow of the property, rather than personal income like more traditional lenders.
For instance: If you have a lead on a four-family property that’s fully leased and cash-flowing, you can finance up to 80% of the property’s value.
Or translated in layman’s speak: You don’t really need a credit score or a great job to get financing.
There are many factors that you should consider. You will note that earlier on, most people used to visit banks in order to get loans that could enable them build or buy a house of their dreams. This used to work well for some people.
However, others used to have a difficult time securing loans. This is because some banks used to charge higher interest rates. This normally discouraged these people. This is the reason why you should consider using a mortgage broker.
What are the advantages of working with this broker? These include:
1. Enable you to Save Money
Would you like to save more money when you are buying a home? You should consider using the services of a mortgage broker. You will realize that this broker can help you compare several home loans from dozens of lenders.
You will not be dealing with one lender only. The good news is that you will be dealing with different lenders. This can help you get a good deal in terms of interest rates and fees.
This can play a major role in helping you save more money.
2. Saves Time
The process of getting a home loan can be very tasking. You have to visit different lenders so that you can compare their interest rates. Sometimes, you might not have all this time. You might end up choosing a lender who charges you more interest.
If you want to save more time, you should consider using the services of this professional. The good news is that this professional will do most of the work for you.
This will include the following activities; liaising with conveyances, real-estate agents, lenders and even settlement agencies.
3. More Peace of Mind
Securing a good mortgage loan can be very hectic. Most people normally struggle to secure these loans successfully. This can make you not to enjoy some peace of mind.
However, the good news is that this professional can help you secure a good loan successfully. You can trust that he will go for the best option out there. This can help you have some peace of mind as you will be doing other activities either at home or at the workplace.
You will realize that this professional will stay in contact with you to check if you have the right mortgage from the right lender.
4. Little Chances of Refusal
There are people who normally apply for a mortgage loan and are denied this loan. This could be due to their credit score, among other factors. This can be detrimental. You are likely to get frustrated.
Some lenders are very strict. However, there are some who are lenient. This is because different lenders normally have different credit policies and restrictions regarding who they will lend to. This is the reason why you should choose this broker to help you out.
This broker will considerably reduce the chances of refusal because he has vast knowledge on lender policies. He will help you settle for a good deal. Thus, an increase the chances of you building or buying your dream home.
5. Professional Advice
You can trust that this professional will help you understand all the mortgage-related information. He or she will help you understand the numerous types of mortgage available out there.
You will note that each of the mortgage types normally has its own parameter and technicalities. This can actually be very confusing to the common man. This mortgage broker will help you sort out all this information and also explain the different types of deals available in the market.
The good news is that this expert will help you narrow down the information to finally choose the mortgage that suits your needs. Sometimes, it is difficult to understand all the legalities that are related to mortgages.
However, this professional will give you professional advice in this field. This can help you avoid certain pitfalls since you will be fully aware of everything that you must know.
6. More Convenient
We all like convenience. The good news is that the professional will work hand-in-hand with home loans and lenders every day of the week. You can trust that this professional will assure you that the entire process will go smoothly and successfully.
7. He Represents you
The good news is that the mortgage broker normally represents you. You can trust that he will work on your behalf and not on behalf of a particular bank.
He will work with different lenders to ensure that you get the best deal out there.
8. You do not have to Pay this Broker Directly
You will realize that you do not have to pay this broker directly for their services. In most cases, they are normally paid by the financial institutions that arranged your mortgage. This makes it ideal to work with this broker.
The mortgage broker normally works for you. He is independent and can help you navigate the often confusing world of mortgages. He or she will work on getting the best deal for you.
This is because dealing directly with the companies can be hard. Some of them might not have the best interest in mind. This is the reason why you should consider using the services of a mortgage broker.
In addition, he or she will help you save more time in the long run. You can carry on with your usual activities either at home or at work as the broker works for you.
You will even manage to save more money. Consider hiring the services of this broker, and you will not regret. The services of this broker are truly incredible.
So, you’ve finally decided to purchase a home. After years of contemplating if you should buy or rent, then saving, building your credit etc, it’s now time to dive in and get it.
Purchasing a home is exciting. After years of dreaming, you’re finally getting a place that you can call your own.
It’s really easy to get caught up in the excitement making you forget to ask one crucial question – how much “home” can you really afford?
…and, once you decide how much you can afford, you should stick to it. It’s all too easy to decide on a price, then find the home of your dreams is only $25,000 more. Then you start thinking, “we can make this work…” But, can you really?
While you may love the fabulous kitchen or huge backyard one house offers – if you can’t pay the mortgage every month or get the cash to fix what’s broken, your home’s never going to be a blessing.
The good news is, determining how much ‘house’ you can afford isn’t rocket science. You can use the four tips here and utilize online tools to help you figure things out.
Build a Solid Foundation
There are countless people who have gone broke by buying a house simply because they believe it’s the “grown-up” thing to do. However, life events such as having a baby or getting married aren’t reasons to buy a house.
The time will be right when the money is right. Before trying to figure out how much house you can afford, be sure you are financially ready to purchase a home.
To do this, ask yourself the following questions:
Are you debt free and have an emergency fund of three to six months put back
Do you have enough cash to cover moving expenses and closing costs?
Can you afford a 15-year-fixed-rate mortgage?
Can you make a 10 to 20 percent down payment?
Do you have enough money to set aside each month into passive investments above and beyond your mortgage?
If you answered “no” to any of the questions above, it may not be the right time to purchase a home. Wait until you have a better financial foundation.
If you are currently financially stable, then move on to the next tip.
Maximize Your Down Payment
One of the biggest costs in a new mortgage is PMI or MIP. Both of these are different ways of saying that you need to pay an extra fee every month because you didn’t put enough down.
If you can get to 20% or more, then you won’t have to pay mortgage insurance for the lender. This can save you hundreds of dollars per month.
When buying a home, remember – the more money you can put down, the better. Higher down payments mean lower mortgage payments every month and the ability to pay your home off faster.
While the best option is to pay 100 percent of the home cost in cash, this isn’t viable for most. If this is the case, then try to put down at least 20 percent. By doing this, you can avoid paying for private mortgage insurance.
Calculate the Costs
All you need to do to figure out what you can afford when it comes to buying a home is to crunch a few numbers. If you need help with this, consider using a mortgage calculator with down payment, which will help you figure things out.
If you want to do things manually, consider the following:
Add up all the income you bring in every month. If you bring home $2,000 per month, and your spouse makes $3,000, then your total monthly take-home pay is $5,000.
Multiply your total monthly take-home pay by 25 percent to determine your maximum mortgage payment.If you are bringing home $5,000 per month, then it means that your mortgage payment should not be over $1,250 each month, including insurance and taxes.
Remember, your bank or lender will tell you that you can afford WAY more than that. In fact, some loans allow you to get to 40% or even 50% of your income going toward loans. While they may allow it, it isn’t financially smart to borrow every dollar you can afford.
Don’t Forget About Maintenance and Capital Expenditures
When comparing if you should rent or buy, most people look at the total rent, compare it to the mortgage, and say it’s better to buy a house.
What you are forgetting is that rent includes all the maintenance costs in a home whereas a mortgage does not.
As a general rule of thumb, it’s good to plan on spending around 1% – 2% of the total home value every year in maintenance and CapEx.
Major capital expenses are things like a roof or HVAC that last for several years. Even though you might have 10 years left on your roof, you should start saving for it now, along with the dozens of other major items that will not last forever.
So, if your home is $200,000, you should think about adding another $2,000-$4,000 per year in maintenance and capex. You definitely won’t be spending this much every year, but what you don’t spend now will be spent in a year or two when you have to replace a $12,000 roof, replace a garage door, etc.
If you have higher end appliances and fixtures, you should be more toward the 2% whereas standard grade homes can be closer to the 1% mark.
When you know your numbers, you will be able to shop for a mortgage and a home with confidence. Trying to determine what you can afford without considering the tips here may leave you with a home that’s going to cause you financial hardship in the future.
Remember, buying a home is not an investment, it is an emotional decision. Once you recognize that, you can begin to take it seriously and make decisions based on actual facts, rather than be driven entirely by your desires. If you base everything on the emotions involved with buying a home, you’ll dive right into a mortgage that you can’t really afford.