- A simple, yet powerful strategy to identify a buy price for value stocks that pay regular dividends.
- How the potential legalization of marijuana can be understood as an investment opportunity.
- Why and how houses and cars are a bad gauge for estimating and understanding personal wealth.
- An updated portfolio performance table.
What you will find inside…
- Not all REITs are created equal. From single family homes to cellular data towers.
- Facebook & major network television – Different, but very similar in a number of ways.
- An updated portfolio performance table. (Ouch!)
- How to use your understanding of people and their relationships to better understand and evaluate companies.
I’m increasingly impressed by the applications and potential Cloud computing currently and will offer in the future. Today I came across an article that discussed ray-traced gaming on a tablet device run through a cloud computing environment. Though I’m sure the current application isn’t all that functional, you can see where the trend is leading to in the computing industry. Cloud computing is revolutionizing the idea of the CPU (central processing unit) and local data storage.
About 11-12 years ago a number of small firms launched back-up and remote file access services for free. This was a form of Cloud computing (a primitive form at that). When the dot-com bubble burst, they shortly were phased out of existence. Since then a financially viable Cloud computing environment is developing. One of the most important changes has been the speed at which we interact on the Internet.
The computer that I work at from home connects at 12mbs, which is the middle tier of my service provider’s option package. Ten years ago you would have been thrilled to be connected at 1mb. The change in what we see as a ‘normal’ connection speed is quite different today than it was a decade ago.
The speed at which a business or average person transfers data has huge implications in the world of Cloud computing. The faster the connection the greater the ability a provider has to harness off-site processing power. You can have all the processing power in the world, but if you are unable to send the information back to the user, then the user will not benefit.
If you believe that Internet connection speeds will continue their trend in becoming faster for businesses and consumers, then you should seriously consider investing in companies that support pieces of what’s come to be know as the Cloud computing framework.
One such company is CoreSite Realty Corporation (COR). COR owns, develops and operates data centers in major markets in the U.S. (LA, SF, DC, NYC, Chicago…). Think of COR as a virtual Cloud Realtor. Off-site storage and processing power are two vital components to Cloud computing. COR is a major player in this arena.
COR is an interesting play because, unlike most tech companies, it pays a dividend. The current yield is 3.1%. As a stock, it doesn’t have the longest track record, since it became public in the latter party of 2010. Over the past quarters revenue has growth. Net income is still slightly negative. If you’re investing in COR your investing hypothesis must be grounded in your conviction that Cloud computing will continue to boom and COR will leverage its current market position to prosper from the trend.
I’d look for further weakness in the market this summer to find an entry point for COR, if it’s a stock that would fit well in your portfolio.
Disclosure: No Position.
How you can financially benefit from owning your own home…
Home ownership is often referred to as the “American Dream.” Whether or not it’s your dream or your reality, it’s important to understand the financial benefits of owning your own home. You must live some where and when it comes to renting or owning, there are a number of advantages to owning.
The most obvious advantage is in terms of taxes. Your mortgage interest is deductible from your Federal income tax. Therefore, if you can deduct a 100% of your mortgage’s interest, then you essentially have an interest free loan. This is a huge advantage over renting.
With property values at their lowest levels in many years in many regions, your home is likely to appreciate in price in the near and distant future. This could mean you will actually profit the day that you decide to sell your home.
Property is also a good hedge against inflation. Consider this, your house has value because provides an area in which to live. If you translate this into a rental fee per month, you house can bring in $X per month. If you assume that inflation causes rents to rise, then your house has a greater earnings potential and thus a greater value to an investor/buyer.
Lastly, if you’re hesitant to buy a home because it may tie you down to certain location, you can always rent out your house. Nothing says that you must live in X location after your house is bought.
Property Price: $200,000
Down Payment: $40,000
Loan Needed: $140,000
Interest Rate: 6%
Period: 30 year loan
Estimated Monthly Payment: $840
Estimate Annual Loan Payments: $10,080
Let’s assume you rent the house out at $200 a night for 50% of the weekends of the year.
52 weeks / 2 = 26 weekends * average stay of 2 nights = 52 days a year the property is occupied by paying customers.
$200 per night * 52 = $10,400 * 20% property management and small incidentals = $2,080
Take home = $10,400 – $2,080 = $8,320
Annual Take Home – Annual Loan = Annual Gain(Loss)
8,320 – 10,080 = ($1,760)
What you see above is pretty conservative in my opinion and we still have not added in other expenses like insurance and any set fees the property management company would charge. Clearly, the occupancy rate is going to be a huge factor in deciding if you’re going to come out profitable or unprofitable.
Keep in mind that most popular destinations provide a variety of choices of where visitors can stay. Therefore, being in a popular spot doesn’t mean you’re going to have a great annual occupancy rate. For instance, I mention Lake Tahoe in the video, which is a very popular destination, but has an excess of places to stay. It’s not the location, but the fact that vacation property inventory is very high in that area. This fact diminishes your anticipated annual occupancy rate of the property.
I don’t mean to discourage vacation property as a possible investment option, but you need to be realistic in your projections. Make sure you don’t overestimate what you might receive. Also, if you really enjoy a location, it might make more sense just to rent a house or a hotel room.
Real Estate Investment Trusts (REITs)
- Companies that invest directly in real estate and trade on exchanges as a stock.
- Enable you to invest in various types of commercial and residential real estate without having to actually purchase a property.
- REITs by law must pay 90% of all taxable earnings out to shareholders. Thus, you typically will find REITs paying sizable dividends.
- REITs typically aren’t thought of as growth stocks, which means you should not expect a lot of price appreciation per share.
- When you’re thinking of investing in real estate, consider if investing in a REIT would be a better option
- Easier entry and exit from your investment (trades on an exchange).
- No need to secure a loan (You purchase on a per share – not per property).
- No need to search for the property and identify a renter.
- REITs benefit from economies of scale (Example – With a large number of units, they will have a lower per unit maintenance bill than a smaller operation.).
- Greater diversification is possible through owning REITs than would be by owning a few properties.