Real Estate Investment Trust – Two Dirty Little Secrets That Property Deve

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.

In conclusion, is your money in safe hands? Are you investing
in a REIT today that has ancient property rental return
valuations or are you buying into a REIT that has a few good
properties in its stable with the rest being duds? Take active
control of your money today and you will start seeing more
visible returns on your investment.

Copyright © 2006 Joel Teo. All rights reserved.

About The Author: Joel Teo writes on various financial topics
relating to Ahwatukee Real Estate Investment. Signup for his
free online Real Estate Investing newsletter today and gain
access to the "Six Day Real Estate Investment Profits Course"
now at http://www.realestateinvestment101.info/Ahwatukee.html

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