Home-mortgage-Reits as an investment?

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What's the downside risk? (Other then real estate imploding a la 2009) 

http://www.cnbc.com/2017/05/09/a-way-to-get-real-estate-income-w...

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Dividends getting reduced, driving down stock price, which brings the yields back up, which then looks "good" again at first glance.

From the article :
"Also, many mREITs bet on the spread between short- and long-term loan rates and use leverage to amplify results, making them especially hazardous if things go wrong."

You have to ask how are they getting those high yields. What happens to this scheme when interest rates go up? The spread between their short term loans and their long term mortgage assets drops and their leveraged results plummet.

vickh said:   What's the downside risk? (Other then real estate imploding a la 2009) 

http://www.cnbc.com/2017/05/09/a-way-to-get-real-estate-income-w...

  

people defaults and don't pay their mortgage ... will impact price;  interest increase sometimes impact it.  

I own few of them .. while back bought NLY around 10%+ dividend ... but the stock price tanked and lost 30% or more on the stock price.   Sold it and recently bought the same company back at much cheaper price.  To me, risk is similar to buying other stocks - sometimes they get hyped up and gets over valued .. and then it comes back to earth.   You just want to get in at a "fair value" and that's the tricky part - at what price point to get in.

If you want to play it safe, go with ETF - they have baskets of stocks so risk is less.

Good investment for good times! When interest rates are low and banks are trying to expand their loan portfolio by taking risks, the EPS of the mREIT increases and you make money. During contraction, EPS falls, and you lose money big time as you saw in 2008. One major issue with these is that they don't make anything, have no sales channels and so have very little control on the market. They can control their own leveraging and risk. Therefore bottom lines are hit immediately after macro shock

Gee...what could possibly go wrong on an investment like this?
I bought Appl a few years ago and I could not be happier.

Isn't it basically a similar risk as a bank except with mortgage-backed securities? They borrow short to lend long to make the spread. But it's highly levered so if the yield curve changes unexpectedly they get killed.

There are several excellent author/analysts at seeking alpha that specialize in these.  Find "ColoradoWealthManagement" and read everything he's written in the last few years.  It's a pretty complex market...mreits have a lot of facets to them and unfortunately it's all too easy to get slaughtered.  But they can produce dividends like almost nothing else. 

jerosen said:   From the article :
"Also, many mREITs bet on the spread between short- and long-term loan rates and use leverage to amplify results, making them especially hazardous if things go wrong."

You have to ask how are they getting those high yields. What happens to this scheme when interest rates go up? The spread between their short term loans and their long term mortgage assets drops and their leveraged results plummet.

  Agreed.

A couple more points.  Many REIT fund managers are compensated based on Funds Under Management, which means the incentive is to grow assets as quickly as possible.  How much care is being put into selecting properties if quantity is valued more than quality?  Also, to get these returns, the REITs have to be HIGHLY leveraged, which can lead to credit and liquidity problems should something go wrong.

Some may remember when savings banks collapsed not just in the recent unpleasantness, but also in the seventies and eighties. Financially, mortgage REITs are doing the same thing as the failed savings banks, only without deposit insurance. Made my living writing banking laws to stop that madness.

look at CEF's

ionxchanger said:   look at CEF's
  
what're the downside risks?



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