7 REITs To Consider For A Highly Volatile Market
Mortgage REIT Two Harbors Investment Corp. (TWO) has an interesting new business plan designed to take advantage of America’s new economic reality. It has entered the housing business by buying single family residential properties – in other words, houses.
In its May 2 earnings release, the Two Rivers management team admitted that they had bought up $6.1 million worth of houses in various American cities. The release included a piece of doublespeak, called a “New Frontier” statement, which included this little gem:
As of March 31, 2012, the company had purchased $6.1 million in properties which are classified as investment in real estate on the consolidated balance sheet. The company intends to hold these properties for investment and rent them for income.
Yes, you read it correctly. Two Rivers intends to become a landlord as well as a buyer of mortgage derivatives. The problem here is that this investment could quickly increase expenses and eat into Two Rivers’ bottom line and its profits.
The problem here is all about the additional expenses attached to the houses. The insurance, the property taxes, the maintenance, the utility bills, the homeowners’ association fees, the repairs. Beyond that, somebody is going to have to manage those houses, somebody will need to screen the tenants, fix the plumbing, and mow the lawns. Obviously, that means management companies, which are also an expense.
Every house that Two Rivers buys is a potential expense that could drag down its earnings per share.To continue reading, click here.