Dipping your toes into the real estate market sounds like a great idea on paper, but it takes lots of upfront capital. Then there’s the constant maintenance, the ever-changing housing market, and the responsibility of finding reliable tenants for your short- or long-term rentals. After adding up all the costs, you might decide that real estate investing isn’t as easy as you’d imagined.
One way to invest in real estate without owning properties is by way of REITs. Short for “Real Estate Investment Trusts,” REITs are sort of like mutual funds for real estate. REIT companies pool together money from hundreds or thousands of investors, then spend it on income-producing real estate ventures and share the profits.
“There are a lot of ongoing costs when one owns real estate, and they’re getting some kind of income from that real estate,” says Omar Morillo, a certified financial planner and wealth advisor at Octavia Wealth Advisors in Miami, Florida. “A REIT offers a way to tap into the real estate market without undergoing all of those expenses.”
But REITs aren’t perfect. There are some downsides to consider. Read on to learn more about the pros and cons of REITs and whether you should add them to your investment portfolio:
What Is a Real Estate Investment Trust
Imagine spending anywhere from $1,000 to $25,000 on REIT shares and in turn getting a new stream of income.
That’s how things work with REITs. REITs are publicly traded or private companies that own, operate, and/or provide financing for real estate and assets that bring in income. The assets included in a REIT might include commercial buildings such as office spaces, hotels, self-storage facilities, warehouses, hospitals, data centers, cell towers, or residential apartment buildings. It’s common for REITs to be clustered according to sector or type—think industrial, healthcare, retail, or residential. There are even marijuana REITS.
To qualify as a REIT, a company must check off a long list of criteria. This includes paying their shareholders at least 90% of their taxable income each year as dividends. Plus, they must invest at least 75% of all their assets in real estate assets and make at least three-fourths of their gross income from sources that are tied to real estate. The lion’s share (95%) of their gross income has to come from real estate sources and dividends. Last, no more than one-fourth of REITs’ assets can come from non-qualifying securities or stock in taxable REIT subsidiaries.
How Do REITs Make Money?
REITs make money through their properties by either selling or leasing them. Instead of other real estate companies, which develop properties with the goal to sell them, the primary objective of a REIT is to develop properties, run them, and fold them into their own investment portfolio. Should property owned by a REIT appreciate in value, the owners provide shareholders with income in the form of dividends.
Types of REITs
There are three main types of REITs:
- Equity REITs. These make up the majority of REITs. They usually own and operate real estate ventures that bring in rental income.
- Mortgage REITs. These REITs provide capital in the form of loans or mortgages to those who own real estate.
- Hybrid REITs. As the name implies, are a mix of both equity REITs and mortgage REITs.
There’s also a difference between a publicly-traded or privately-traded REIT: Privately traded REITs are also known as non-traded REITs, meaning they’re not traded on the stock exchange. Publicly traded REITs usually have smaller dividends. However, according to Morillo, publicly traded REITS provide greater transparency and higher liquidity than privately traded REITs.
“A common issue with the private REITs markets is that, unfortunately, some actors will do what I call ‘milking their REITs,’ ” says Morillo. “In other words, they’ll charge excessive fees and expenses because the REIT is obligated to distribute at least 90% of their profits back to the shareholders. But as long as those internal expenses are jacked up, then the shareholders don’t really get their fair due.”
Pros and Cons of REITS
Let’s look at some of the advantages and downsides of REITs.
REITs can be a good way to diversify your portfolio
If you have mutual funds that are invested in stocks and bonds, instead of going out and buying a rental property, REITs will give you a way to tap into that real estate industry, explains Niv Persaud, a CFP and managing director and founder of the Atlanta-based financial planning firm, Transition Planning and Guidance.
REITs are tied to a tangible asset
If you’re looking to earn some income from your portfolio, a REIT often seems like an attractive way of doing so. REITS are often easier, since you don’t have to go and acquire a property on your own, says Morillo. “You don’t have to play landlord and deal with the operations day to day, whether it’s an apartment building or hotel or retail,” he says.
Market forces or economic conditions can impact income-earning potential
Because REITs are clustered by sector or type of property such as healthcare properties, retail, residential, or commercial, they can be impacted by an economic condition or state or local mandates because of their location. For example, in the middle of COVID-19, there were rental moratoriums where people weren’t paying their rental property. Meanwhile, healthcare tends to be less cyclical—so with some research and good diversification you can try to balance out unfavorable market conditions.
Non-traded REITs are fairly liquid
The time horizon for REITs can be tricky. Publicly traded REITs are usually more liquid than private REITs, which can’t be sold very quickly. However, a best practice is to give yourself at least a few years before tapping into the money: “You need to act like this money doesn’t exist for a couple of years,” says Morillo. “There’s no turning around and trying to liquidate it in six months, because you had an emergency, or a year and a half from now because your daughter is getting married and you’re going to pay for the wedding.”
REITs are sensitive to interest rates
Just like any type of real estate you buy, REITs are tied to federal interest rates. “When the Federal Reserve says that they’re going to raise interest rates, a lot of times your REITs prices will fall,” says Persaud. Interest rates impact each type of REIT differently across industries and companies.
REITs are taxed as ordinary income
As Persaud explains, if you’re ready in a high tax bracket, then dividends from your REITs will be taxed as ordinary income. “But because REITs are part of your investment portfolio, your financial adviser will be able to manage some of the taxes,” says Persaud.
Should You Invest In REITs?
Not all REITs are the same. Know whether you’re most interested in residential, commercial healthcare, or retail REITs—and what risks are involved. Brush up on industry news and inquire about both local and federal regulations that might impact your ROI.
“For example, with retail REITs, if you look at how the market is, more people shop online than going into a retail store. You really want to understand what you’re investing in,” Persaud says.
Like any financial move, Persaud recommends asking your financial advisor to recommend some REITs that would best fit in your portfolio.
And don’t get too swept up in the allure of passive income, says Morillo. Just because REITs generate income and pay annual dividends doesn’t make them risk-free.
Investments that provide income aren’t necessarily less risky than other types of investments—always research fees, tax implications, and expected returns.
“People tend to have this point of view that because something pays income or dividends is less risky,” he says.
Weigh the pros and cons, and take a good look at the fees and costs involved. If you do decide to invest in REITs, keep the timeless adage, don’t put your eggs in one basket, in mind.
NB Investment Awareness Campaign Targets Scam-Prone Millennials – Huddle Today
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SAINT JOHN – Millennials are more prone to lose money in financial scams than their elders.
With years of attention paid to educating older Canadians about protecting their money from fraud, it may be surprising that many younger investors have fallen victim to get-rich-quick pyramid schemes, bogus virtual currencies, and more.
Perhaps equally surprising is how New Brunswick’s financial and consumer services regulator feels Millennials are disinclined to take financial advice from a Crown corporation.
“We know this demographic is notoriously difficult to reach,” says Marissa Sollows, the director of education and communications with The Financial and Consumer Services Commission of New Brunswick (FCNB).
In an interview with Huddle, Sollows cites FCNB’s research, in addition to research coming from other provincial commissions, confirming millennial investors are in some cases at higher risk of falling for poor investment pitches or making decisions without the right financial knowledge.
In the first nine months of 2021, 20 New Brunswickers reported losing nearly $711,000 in crypto investment scams, according to the Canadian Anti-Fraud Centre.
“When we started looking at this situation in New Brunswick, it became clear as we saw different trends in DIY investing and interest in crypto and that this was an audience that we needed to try and reach,” explained Sollows.
Not your parents’ investment landscape
Sollows says Canadian investors in their 20s and 30s approach their finances from a different cultural perspective than their predecessors: research shows they are less likely to want to work with a financial advisor and want more hands-on control over their investments.
But Sollows says there is also fear that they don’t know enough about investing and are worried about losing money.
“To come from a regulator, we sort of recognized it wouldn’t work as well for this audience, who get their information from different sources and who have different levels of trust with those different sources,” said Sollows.
In an effort to respond with something meaningful for the Millennial segment, FCNB designed a new awareness campaign that was outside its traditional outreach. Where social media has hooked young investors on finance, FCNB decided to put more of its campaign resources on YouTube, Twitter and, for the first time, TikTok.
For Sollows, that meant focusing not just on what channels Millennials were getting their financial information from, but also trying to understand how they were interacting with those they perceived as “experts” and where that financial advice was coming from – whether legitimate registered online trading platforms or somebody purporting to be an expert with a hot tip.
“There’s a much higher level of comfort, with the younger generation, with technology and with putting trust in their peers in these different online forums as opposed to going to a traditional financial advisor that their parents would have had more trust in,” says Sollows.
On Nov. 22, FCNB launched “The Right Recipe,” a new investor education campaign targeting Millennials and do-it-yourself investors with resources designed specifically for them.
FCNB campaign videos serve as explainers on a variety of topics–including fad investing, multi-level-marketing schemes, influencer scams, and high-risk investment products–while reinforcing the steps any investor can take to protect themselves and their money.
Do-it-yourself investing is exploding
Covid-19 lockdowns and uncertainty translated into a meteoric rise of online DIY investment platforms and trading apps, leading many to investment possibilities for the first time at the touch of a button. Others are getting their advice on social media and choosing instead to test unconventional methods. But, as Sollows points out, these often “prey on FOMO” (fear of missing out) on advertised payoffs.
The rise of “finfluencers” (a specific type of influencer who focuses on money-related topics) have made full use of platforms like TikTok, Instagram, and YouTube to get the attention of young investors. Couple that with Millennials increasingly willing to devote cash on decentralized cryptocurrencies and hot stocks – with much of that advice coming at them through social media – and you’ve got a scene rooted in familiar tones.
Interactive Investor, A UK online investment service published a July survey showing more than half of young investors surveyed in the UK who have purchased cryptocurrency like bitcoin or dogecoin have done so using credit cards, or even student loan money.
More unconventionally, users of Reddit have made headlines swelling into pump-and-dump schemes targeting low-cost stocks for small companies. Money inflating the value today might be worthless tomorrow on a pre-planned selloff, leaving young investors holding pennies of worthless stock days later.
Trendy concepts like “Impact Investing,” where a company gathers investment intenting to “generate measurable, beneficial societal and environmental impact, alongside a financial return,” have gotten young people to invest money for the promise of helping a greater good, which often leads to confusion and no return for the investor.
“It’s the same old scam,” according to Sollows, who says it’s just wrapped up in different wrapping paper with a different story around it.
“We’ve seen this kind of thing happen with ‘green investing’ in the past when renewable energy and so on was becoming really popular. The scammers would follow the headlines and build pitches around it.”
Financial awareness education is evolving
On the flipside, Sollows says there’s a need to help young investors navigate many of the legitimate online platforms out there. She hopes FCNB can be a trusted resource to help Millennials make some of their first investment decisions, especially when going the DIY route.
“The Right Recipe” depicts a fictional brewmaster who has heard a lot of financial tips over the years.
He’ll tell you that everybody knows someone who’s made a bundle in the markets. He figured if his customers could do it, why couldn’t he? The example allows the user to follow his investment journey, for better or worse, through videos. That journey is everything from “listening to some rando’s advice on social media” to letting “FOMO be his guide” and blindly “following the latest investment trends.”
In addition to campaigns like “The Right Recipe,” FCNB also offers investment updates and fraud alerts emailed directly to those who sign up on its website and provides a variety of financial literacy topics through both in-person and through virtual presentations. Those sessions are offered to workplaces, classrooms, and the broader community, covering topics ranging from financial literacy and budgeting to investing to fraud prevention.
For navigating the investment learning curve and the possible pitfalls for young investors, Sollows believes the campaign would be a success if people used the information and experience of the brewmaster to instead follow their gut instead of social media when the offer seems too good to be true.
“If you’re being offered some crazy returns on things, and they’re telling you, ‘Oh, I can guarantee you’re going to make this much money and it’s so easy you don’t need to understand it — In any other aspect of your life, if somebody said that to you, would you keep the conversation going or would you walk away saying, ‘No thanks, I’m good.’”
FCNB’s The Right Recipe campaign will run until mid-February, in both English and French on most social media platforms and at: therightrecipe.ca.
Tyler Mclean is a Huddle reporter based in Fredericton. Send him your feedback and story ideas: [email protected].
Don't invest in crypto before a 401(k) or IRA, warns these experts – CNBC
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Many investors are pouring their cash into crypto — with the youngest segment making up the majority.
A recent survey by Select and Dynata found that nearly half (45%) of 18- to 34-year-olds say they have purchased crypto. They represent the greatest share of crypto investors, followed closely by 37% of 35- to 44-year-olds. Meanwhile, only 11% of 55- to 64-year-olds and a mere 4% of 65+ investors are buying into the digital currency fad.
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Investors may purchase coins for various reasons, whether it’s with hope of turning a quick profit, the potential for long-term growth or just to get in on the excitement. Some young investors, however, are choosing crypto over investing for their retirement. And herein lies the problem.
The same survey found that 44% of investors who have less than $10,000 in investable assets are currently investing in crypto, but only 26% have a 401(k) or 403(b) and 17% have an IRA.
While cryptocurrencies can certainly be fun, short-term investments, Lindsey Bell, chief markets and money strategist at Ally Invest, doesn’t recommend putting a substantial portion of your portfolio into these assets or forfeiting your retirement fund.
“Investing for the long term should always take precedence over investing for the short term,” she says. “The advantages of a 401(k) or IRA, including a company match, should be pursued before allocating short-term, fun money.”
Here’s what to consider
Tony Molina, a CPA and product evangelist at Wealthfront (the first robo-advisor to offer crypto access — up to 10% of your portfolio), agrees that the eagerness to join the crypto craze shouldn’t get in the way of building long-term wealth for retirement. And it’s even more important if your employer offers a 401(k) contribution match (hey, that’s essentially free money).
But saving for retirement doesn’t need to mean missing out on crypto if that’s something you’re really excited about, Molina says. If you have a 401(k), he recommends you contribute at least up to the amount your employer will match and then think about buying crypto with the extra funds you have leftover. For example, if your company matches up to 6% of your salary, contribute 6% so you’re first doubling what you’re able to put away before you’re strategizing investing elsewhere.
“I’d encourage investors to think of cryptocurrency as one type of asset class they could include in their long-term, wealth-building strategy,” Molina adds. “Crypto shouldn’t necessarily be the main focus of your strategy because of the uncertainty and risk involved, but it can fit into your portfolio overall.”
Crypto investing, though easily accessible through finance apps like Square’s Cash App and PayPal, comes with risks. Most cryptocurrencies and crypto tokens see significant price volatility, which is why it’s seen as a risky choice for many retail investors.
“While it’s easy to get caught up in the hype and potential instant gratification of crypto or other hot asset classes, it’s important to remain grounded in reality as well,” Bell says. “These types of assets are very volatile, and while they are becoming more mainstream, the future around growth and regulation remains uncertain.”
Don’t have 401(k) access to save for retirement?
“An IRA is a great option for saving for retirement because you have a lot of control over what you’re invested in, you may be eligible for some great tax breaks and you can open an account on your own without relying on your employer,” Molina says.
You can find IRA options offered through many national banks, investment firms, online brokers and robo-advisors. Select narrowed down those offering the best IRAs for all types of investors, as well as the best Roth IRAs for growing your money tax-free. Charles Schwab, Fidelity Investments and Betterment made both rankings.
Whether you want to invest in cryptocurrency because it has performed well in the past or because you feel pressure seeing everyone else do it, it’s important to first prioritize your retirement funds. Crypto’s past performance doesn’t necessarily mean it will continue to do well in the future, and FOMO isn’t a solid reason to get involved, warns Molina.
Investors curious about crypto can get the best of both worlds by first contributing enough to their 401(k) to meet an employer’s match, if offered, or funneling funds into an IRA. If you have extra money, then consider buying crypto but make sure you know what you’re getting into beforehand and don’t allocate more than 10% of your portfolio to these risky investments. Remember, diversification is key to a successful investing portfolio.
“Before you go all in on any investment, especially a riskier asset like crypto, make sure you have a logical argument for why you believe that investment will increase in value over time,” Molina adds.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
Western News – Leadership institute receives $3.5-million investment – Western News
Western’s Ivey Business School has received a new $3.5-million gift benefiting the Ian O. Ihnatowycz Institute for Leadership, a character-based leadership development program launched in 2010.
The gift, from Ian Ihnatowycz, his wife, Marta Witer, and the Ihnatowycz Family Foundation, builds on the Ihnatowycz family’s original gift to establish the Institute and will allow it to extend its teaching, research and outreach on the awareness, assessment and development of leader character.
Along with a $2.5-million matching contribution from Western University, part of the funding will create the Ihnatowycz Family Foundation Chair in Leadership, which is jointly appointed with Western Engineering, to bring the programming to engineering students.
The announcement was made at the 2021 Leader Character Conference, where leaders from the public, private and not-for-profit sectors gained a greater understanding of the impact of leader character, particularly in the transition to a post-pandemic world.
“We’re living in a particularly disruptive environment, and it requires strength of character among leaders to lead in this new dynamic,” said Ihnatowycz, MBA’82, LLD’13. “The world needs good leaders – character-based leaders – and what’s really exciting is that we can impact future generations of leaders and improve the communities and societies we live in, and hopefully, the world.”
Sparked by crisis
Ihnatowycz said he founded the leadership institute at Ivey after witnessing deficiencies in leader character during the 2008 financial crisis. The institute aims to examine the importance of character alongside competence in leadership, and how it is developed.
“In that first 10 years of the institute, we discovered and elaborated on what those characteristics of leadership are, why they are important, and – most importantly – that they can be taught. People are not necessarily born with it. Some have more talent than others perhaps, but leader character can be taught and nurtured,” he said. “I’m most proud of the fact that this knowledge is there and has become part of the fabric of the institute and of the Ivey Business School, building its reputation as the leadership school. Hopefully, it expands to other faculties and Western will become the university that is based on leadership.”
Leader development beyond Ivey
Ihnatowycz’s long-standing relationship with Ivey, including a total investment of more than $7 million in leadership programs, has helped the school become a global leader in research, teaching and outreach on leader character, according to Ivey dean Sharon Hodgson. She said the next step is to explore the development of adaptive and resilient leaders, who can weather unprecedented disruption. Through the new joint chair position, Hodgson said she hopes the gift will expand the programming across campus.
“The chair is an important addition to the institute to accelerate cross-campus sharing with the Faculty of Engineering, with a longer-term objective of inspiring additional faculty and donor involvement in, and support for, leadership programming across campus,” she said. “We sincerely appreciate Ian Ihnatowycz’s unwavering vision for and belief in the work of the institute, and we are excited about its future.”
Creating a legacy
Gerard Seijts, executive director, Ian O. Ihnatowycz Institute for Leadership, said the support of the Ihnatowycz family continues to create a legacy of enormous value.
“They have enabled us to deepen our contribution to Ivey’s student curriculum and extended our outreach to those within the public, private and not-for-profit sectors. Our students, colleagues and clients’ lives are enriched by the opportunities Ian and Marta help to create. We are all sincerely grateful,” he said.
Yudi Yang, an HBA ’22 candidate, experienced firsthand how character shapes the way people engage with the world. Yang participated in the institute’s five-day Leadership Under Fire course last summer that aimed to deepen understanding of the various dimensions of leadership character when under emotional, physical and mental stress. During the announcement, she shared what the course meant to her.
“This unique experience was critical in helping me to re-evaluate and hone my character, and has truly impacted my life in terms of what I notice, what I reinforce, who I engage in conversation, what I value, what I choose to act on, and how I make decisions,” she said. “Without the support of the Ihnatowycz family, none of this would be possible. Thank you for making an investment in our future and the future of the world.”
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