To answer your question, I made a handsome return in two REITs in Inland REIT and Inland Retail REIT in 1998 and 2001. I put about 15% of my savings. In Inland REIT (IRC) my shares went public in 2004 but I didn’t sell until 2006 when the shares hit $18. Before it went public it paid about a 9% distribution of what I put in and I paid $10 a share. For Inland Retail REIT the sold the fund to a publicly traded company (DDR) for $11 a share and $3.60 of DDR shares. I bought my shares at $10 a share and I was paid an 8.5% distribution. They did so well for me when my stocks got crushed in 2001. I wanted to buy more after I sold my shares but my broker told me to wait it out until everybody hates them.

On the other hand, certain non-traded REIT sponsors and independent broker/dealers SHOULD be ashamed. They have done a horrible job of protecting investor capital, and they dislike what has been written here simply because it hurts sales.

This website has not only contributed to a considerable amount of unwanted scrutiny from FINRA and the SEC, not to mention some considerable of attention from a flock of smart attorneys, it has also contributed to a host of negative publicity from traditional media, including The Wall Street Journal, The New York Times, Bloomberg, and Kiplinger’s Retirement Report, among many others. All of this makes it more difficult for the many charlatans in this business to profit from the elderly, the widowed, the divorced, the desperate and the ignorant.

N.B., The previous comments to this post are not “gone”. On the contrary, so many people commented on this post that WordPress automatically abridged the list into two separate pages. You can read all of the previous comments here. There are nearly 100 of them so far, and still counting….

The only reason this site its relevant is what happened with real estate recently. Absent that, this site would have even less play. But it seems to keep this Bay Area real estate agent busy.

But suspect his name is removed as it is hard to use this an independent site to”educate” clings when you wrote it.

Run from this site.

Publisher is in competition with non-traded RIETs.

If you’ve read the offering circular I would say sense.

I like the idea of using investments in a portfolio that produce income. I’m scared of bonds, and there seems to be ample research to support the use of REITs in a portfolio for diversification. In one of your posts…
July 10, 2009 10:34 AM
“If it’s real estate and income you want, why not just buy O? ”

Back then, it had a dividend of 7%, now it’s about 5%. Still in the range of a solid dividend. On a recent post…
May 20, 2011 at 1:46 pm
“As for ARCT, ……before someone convinces you to buy in at $10, consider the fact that book value at year end was only $6 and change. It’s the same old story…”

In spite of the loads and fees and all of those costs that are used to pay commissions and what not, ARCT is currently priced at only 1.56 times book value ($10/$6.41 = 1.56). The company that you equated income to on the traded REIT side, ticker: “O”, is trading at 1.99 times book value today ($35/$17.57 = 1.99). It seems to me that ARCT would represent a value relative to the traded alternative in today’s world. Am I missing something?

The good news for you is that your REITs are not going to zero on you, and they should continue to pay you dividends. It’s just not clear at what rate they will pay dividends in the future, since they are not generating enough cash to meet the current payout. At some point, this overspending will probably catch up to them, but it shouldn’t result in a financial calamity for you.

Nevertheless, in the case of Apple, they have been using borrowed money to fund your dividend payments, and this money will have to be paid back. If they cannot fully repay the borrowed money and sell their hotels for at least 100% of what they paid for them, then the principal amount of your investment will be reduced. There’s just no way around that. But you are correct, Apple’s relatively low leverage means that this is a low risk portfolio, and your losses – IF ANY – should be limited.

Now for the bad news. The fact that these properties are Hilton and Marriott branded hotels means absolutely nothing. What matters is what Apple paid for them and how much income they generate. If the income these properties generate has decreased (which it most certainly has, based on the financials in their latest SEC filings), then the property values have also decreased. This is an almost immutable law, all else being equal, and this is true whether it’s a Super 8, a Four Seasons or a Dunkin’ Donuts.

With regard to where your downside is, it is exactly where you think it is. There is a not unlikely risk that these companies will (a) cut the dividend; (b) eliminate the shareholder redemption program, and (c) cut the value of the shares to reflect the true market value of your investment. This happens primarily because these companies pay out more in dividends than they earn. The reason they do this is to suck in vulnerable, income-oriented people like you, and then convince you to buy. This allows them to earn extraordinarily high fees and commissions, without any of the investment risk. There’s just no way to sugar coat that.

Furthermore, I can tell just from reading your comment that you are a conservative investor whose primary concern is safety and income. If that’s true, you should be asking why your broker at David Lerner concentrated 50% of your portfolio in one asset class, never mind a highly volatile niche sector like hotels in secondary/tertiary markets, which are illiquid to boot. It’s hard to imagine any reason for doing this, but the answer may have something to do with those extraordinarily high fees and commissions, not that this was suitable for you (or that it makes any financial sense whatsoever — because it doesn’t). It may also be that David Lerner is more interested in his own financial well being than in yours.

As for ARCT, they talk a lot and they are very good at public relations, but they are not covering their dividend with cash flow either, and before someone convinces you to buy in at $10, consider the fact that book value at year end was only $6 and change. It’s the same old story (except that they say they are covering with MFFO) .

The issue here is that these unscrupulous promoters are exploiting people like you by serving up income that isn’t really income, and a fixed share price that hides all the problems until after it’s too late. I tell people that the “reliable” Non Traded REIT dividends are just like deodorant – they cover up the stink, but not for long. If you’re wondering what all this means from a practical perspective, read Dividends Should Not Be Paid From Offering Proceeds.

If you want to ask more questions about Apple, there are some pretty knowledgeable members posting on the forum, which I’m sure you’ve noticed. Some post, some just read, but all will take an interest in your experience and perhaps they will be able to help you. I would not be surprised if even David Lerner himself has visited once or twice.

The moral of the story is that investors must take charge of their own financial future. Make absolutely certain that you have a good financial advisor; know the difference between a broker and a fiduciary; read the fine print, and most of all – ask lots and lots of questions. If something doesn’t sound right, it probably isn’t.