 for the introduction. What a great service you have here for everyone. I'm going to go ahead and share my screen. Can you see it? Can you see my screen? Orange cover. Yes. Excellent. Thank you for that. Okay, folks. Here we go. Nice to nice you to join today. We're going to talk about the ABCs of real estate investment trusts or what they call REITs. We're going to go ahead and go through about 15 minutes or so of content and then I'll ask you to, and then I'll open up for a few questions. I'll have Nancy monitor the chat. So Nancy, so please, any questions you have, put them in the chat. She'll look at them and prioritize them and synthesize them and we'll take a few and then we'll take a few more 10 minutes later and then we'll take some at the very end. So I'm looking forward to that. I think that's probably the best part of the presentation is being able to answer your questions. Okay, here's our disclosures. I won't read this, but it just basically says this is educational. So whatever you'd like to think about doing or want to do, you should check with your own certified financial planner, your tax person, your attorney. You want to go and make sure that it's appropriate for you. Okay, and here's your agenda today. We're going to talk about a couple of different things. First, we're going to go over the basics on REITs so that we're all on the same page. Second, we're going to talk about the numbers really kind of a case for adding REITs to a overall portfolio. Then we're going to talk about the pros and cons a bit and go into a case study of an actual real estate investment trust. We'll redact the name of that trust, but I want to show you how that works. Then we're going to give examples of three potential buyers of REITs, and it'll take your questions at the very end. Okay, so the first question is what is a REIT? First of all, a REIT is managed by a management team, an investment management team of professionals with lots of experience in commercial real estate. Right away, when I say the word commercial real estate, it includes things like apartment complexes, office buildings, warehouses, industrial, that sort of thing, retail specialty. Commercial real estate generally does not include single family properties for plexus, that sort of thing. That's where the distinction is. That would be while those could be investment real estate properties, those aren't defined as commercial real estate. So there's a pool of managers in any fund that actually manages them in their typically very experienced long tenures. They can be either available publicly, which means that they can be purchased from the stock exchange. You can open up a Schwab E-Trade, something like that, or work with a financial advisor and purchase through that, or something that can be private, which means that they're not available through a purchase of a stock symbol. Each REIT includes each commercial REIT that's publicly available, includes thousands of investors. So it's just not you and your roommate or you and your family member investing, but these are lots of folks that you've never met before. That's not a bad thing. They're all contributing the same thing. They're all contributing money. And this money goes into a fund that raises enough money to go out there and purchase commercial properties. So that's what that means in terms of having lots of investors there. The portfolios are diversified. A couple of different things about that. One is that they don't just buy one or two or three properties, but REITs tend to buy dozens or hundreds of properties. And the value of these properties as an aggregate are generally about half a billion to a billion or more dollars. So there's a lot of real estate share at play. And so in that way, because they invest different in different properties in different parts of the country or even the world, they are diversified geographically. And then finally, there are very low minimums. So we're talking about billions of dollars. We're talking about thousands of investors. We're talking about lots of skilled managers. But in the very end for investors, the minimums to be involved in a REIT can be as small as $2,000 or $5,000 or even for some of the ones that are traded $1,000. So they're actually within reach. You don't have to have hundreds of thousands of dollars in equity to invest in a real estate trust anymore. You can do it with a few thousand dollars or even money in your IR account. Okay, so let me give you a little bit of an outline of what the timeline is for REITs. Back in 1960, Congress said, yes, the REIT structure can exist. So that was about 61 years ago and they allow the use of REITs, aggregation of properties to be sold to the public for investment purposes. Then in 61, you saw the very first community shopping center REITs and shopping mall REITs. That was early on in 1971. That's when you began to see the rise of apartment and warehouse REITs and distribution facilities. It was way back in 71. Go to 86, self-storage, actually from 86 for a couple of years. That was quite a hot commodity there, self-storage REITs. Again, real estate investment trusts. 88, we have suburban office parks that came out of the REIT scene. In 2001, gasoline stations, there are REITs for gasoline stations. Basically, if you can think of a property type and commercial real estate, there's probably a REIT for that. In 2004, data centers, that makes total sense given the rise of the Internet and e-commerce. 2012, pipelines and single-family rentals, that's when those REITs came on the scene. Finally, the last example is electric transmission lines in 2015. You can actually buy a REIT for that. Then there's lots of other ones that we didn't cover, the movie theaters, the banks, the life science buildings, and so on. But like I said, chances are there's an asset class that you like. There's probably a REIT that addresses that asset class. Okay, so now we're going to divide this up a little bit. A little bit technical here. I'll try to make it simple, and I'll encourage your questions definitely in a few minutes. But there are two different types of REITs. One is a traded REIT, which means that people like us, you and I can access these by putting our dollars into the fund. Then there's non-traded REITs. A traded REIT is, which is the same thing, except they're not on the open market. For example, a traded REIT is listed on the open market. What that means is that you can actually see it. You can go to Yahoo Finance or anywhere else. You put in the symbol numbers, you look at it by the name of it, and you'll get the symbol numbers. It's actually traded. It's available for trade daily on the business day, and you can get out of it when you want. In that way, it's liquid. There's liquidity. If you need the money, you can go ahead and within three or four days, you'll be out of that fund. There's control because you have a chance to go and get in when you want, and you can get out when you want. You have control over that investment. Now, what you don't have control over is what the performance is between the time you get in and out, but you do have control over when you take your funds and decide to move them. They have daily share values. At the end of every trading day, you'll see what the end of the day value is, and you can market every single day if you want. Not a good idea to look at your investments every day, but you can if you want with these traded REITs. Then finally, there are less restrictions because they're more liquid and they're more visible. The non-traded REITs, you can invest in those too, but the difference is that there's pros and cons to them, but the difference is that they're not listed. You won't be able to look up their ticker symbol. It doesn't mean it's bad because you can't find it. It just means that it's private. It's non-traded. On the one hand, you can't see it every day, and on the other hand, it's actually more transparent than traded because with traded REITs, you normally don't get to see all the investment positions that you're in, but with the non-traded, they actually will give you a list, typically a list of every single property, purchase price, cash flows, and the whole bit. They're illiquid, so there's generally a holding period. The holding period lasts anywhere from three years to nine years. It depends on the fund perspectives and perspectives and what they hope to accomplish with their holding period. They're more tax efficient. I'll give you an example of that later, but you can actually get an after-tax yield that's greater than many other investments because they do allow for you to be able to take advantage of the tax efficiency of real estate. They're less volatile because they're not traded every day and because the prices don't change every day. There is volatility in them, but it doesn't happen until the entire fund is valued. There are typically higher dividend rates and there are various exit options. They can actually at the end of the non-traded rate period, they can go public and have its own IPO. They can sell their properties out at chunks at a time or one at a time or they can merge with another rate. That's typically what the exit options are for non-traded rates. We're going to dig into the last technical part here, private versus public. A lot of things that you might hear about regarding small family or small group investments are really private. They're not really available for the public to buy into. These are typically individuals, regulation D offerings, group offerings, private investors, that sort of thing. Those are private investments not open to the public. What we're going to focus more on is we're going to focus more on the public offerings and all the public offerings are SEC registered. That means there's some sort of oversight. There's regulation to this and that brings some people a little bit more peace of mind that there's somebody overlooking the entire process and perhaps the funds are held accountable to a much greater extent than they are on the private side. There are the trader rates we talked about. We just mentioned a little bit about those earlier where those are liquid. There are the non-traded ones where they're illiquid, but they have other features of them that are beneficial to some investors. And then there's something called the interval fund, which is kind of a hybrid. It is like a non-traded rate. You get the benefits of the steadiness, the cash flow, the tax advantage. But you also get the flexibility to get out of that interval fund on a monthly basis as opposed to holding three to nine years. So keep that in mind. There's a kind of a fund right in the middle of the two, the traded and non-traded, that might be suitable, might hit the spot for some investors. Okay. So the typical life cycle of a REIT is that they raise money. So in the very, say the very first third of his life cycle, they're raising money from people like you and I. They're typically doing this through the different platforms or the advisors that they work with, that they're approved to offer their properties or fund to. Then they take it to after they've done, after they're done raising money, they stop the raise and then they spend a number of years stabilizing the assets. And what stabilizing the assets means is that they are taking what they purchased and they're trying to improve on them or strengthen them. So for example, they might have purchased a building with an occupancy of 85% and perhaps a target on that is 93%. And that's what they're working to do. They're looking to increase rents over time. When inflation happens and the costs of goods increases, it's typically that real state follows. So when you increase rents, because people are paid and I guess they are rewarded, when the value and the income increases over time, it increases the share value when rents increase. So they're stabilizing, they're working hard to stabilize these properties and make them into a nice exit for the investor. Now I'm talking about the non-traded rates, the ones that they hold for three to nine years. And then the third part of the cycle is that they sell a portfolio in one of the three areas or three ways that I mentioned earlier. Okay. So we're going to talk about numbers now for a little bit and then I'll take a few questions. And you want to get your questions into Nancy, put them in the chat and she'll look at them. And we want to stick to questions on things that we've been talking about so far, because there's probably some other things that you might have questions on that we'll cover in a few minutes. Okay. So let's take a look at the numbers. This chart is interesting. This is a chart put together by JP Morgan. And what they've done is they source the return rates of a variety of different types of investments over a 20 year period. The 20 year period ended in December 2019. So it's fairly recent, not exactly till last year, but fairly recent, but it goes back to 99. So when you take a look at all of the different investments here on this bar chart, you see REITs, you see gold, the S&P 500 exchange, 6040 means 60% stocks, 40% bonds in the 4060 is a flip of that. So you'll see all these asset classes. This has been, these are measured over a 20 year period. So what that means is, for example, with real estate, it considers the bust of residential real estate, which is not necessarily commercial, but in 2008 and in the rise of real estate before that, it considers the drop of the what the dot com bust back in the early 2000s and the other drop in 2008. So this covers a lot of period, a long period of time. So if you look at it in the last 20 years, and so this is a really cherry pick, this is not in the last three or five years, REITs have done really well in terms of return rate. Gold has done good. The stock market has done okay too. Some people are surprised as 6.1. Some people thought it would be less, some people more. Take a look at homes. Homes are defined as places where people live. In other words, they're not investment properties. They're lifestyle assets, places you purchase or you rent. The appreciation for homes has been 3.4 percent over that time. Inflation has been 2.2. And by the way, the average investor has been just under 2 percent. A little bit disappointed to see that. The reason for that is generally the investor chases what is hot. What is hot generally drops over time. What is actually not performing well, generally increases over time typically. So when somebody chases something that's kind of hot or on top, they're probably in for a decline coming forward. That's just the way that worked. And that's an actual number. That's a not a good number, but it's a number that has been verified. So REITs have done a good job. Even if I throw in last year, if I just speculate a little bit on last year, this REITs performed, the trade REITs performed like the stock market. So they probably have maintained or, you know, their 11 percent return rate on an average for 21 years. If I had to just guess on that, the non-trader REITs, some of them would define some of them hurt, but it's not over here because they're still going through their cycles. So, and of course, remarkably, the stock market did well, the market not so well last year. So, but still, this is a 20 year average. So even if you add last year into this, you won't get much more of a difference. All right. So this is looking back where it's not looking forward, but I thought it was interesting to show you what the REITs actually do a pretty decent job in terms of return for investors. OK, let's talk about what tax advantage means, because I know this is a question that comes up often. I teach a class at UC Berkeley Extension. It's real estate investing, and we hold it in San Francisco or recently on Zoom. And so I know people really want to know about this. I'm going to try to make quick work on this here. We're going to make an assumption of a hundred thousand dollar investment for a moment. And we're going to go ahead and assume that that investment produces a 6 percent return rate. All right. Now, and real estate on non-traded real estate and also real estate that you hold directly this investment property, you can depreciate that property over time. You can also write off the mortgage interest. So let's assume for right now, and this is not outrageous, but let's assume that I am able to deduct 50 percent of the income thanks to depreciation and mortgage interest. OK, and also there's something new a couple of years to call qualify business income that I can deduct 20 percent off from the very top. So that's another tax benefit for most of the rates out there. And then there's the let's say assume that we're in the 35 percent tax brackets together. All right. So that's the assumptions that we want to make. Let's see what happens with those assumptions if we invest in a note. A note is basically taking back a note from somebody you lend them a hundred thousand dollars and they pay you 6 percent a year. That's what that is. So on a pre tax yield, you get your 6 percent, which means that you get $6,000, which isn't too bad. But there's no write off because notes are all ordinary income tax. There's no tax benefits to that. So your taxable distribution is still 6 percent. There's no QBI deduction or credit for that either. So it's still 6 percent of a hundred thousand. So $6,000. So your taxable net net taxable distribution is $6,000. We're at the 35 percent tax bracket. That means that the government keeps $2,100. That means we get to keep in our pocket after that $6,000, $3,900. This is really important because people really want. It's really about what you keep at the very end of your investment, not necessarily what you make on a gross basis. OK, so and we're at the 35 percent tax brackets are effective tax on this investment was 35 percent because there's no deductions or no tax advantage. And that means our yield or actual yield was not 6 percent on this investment, but it was 3.9 percent. So much less than six, but it's part for the course, given, you know, the assumption that laid out here. Let's say that you put that $100,000 into a REIT. You get that same 6 percent assumption that we made. The distribution is $6,000, but then we get to write off half of that for for tax write offs. So that means we're only taxed on $3,000 of that so far. And then we get 20 percent of that QBI credit to for most REITs that most REITs get. So that means you save another $600 in taxable income. That means that your net net taxable distribution is $2,400. You take 35 percent off of that and the taxes only 840 compared to 2100. You get to keep $5,160. That means that your average tax rate for that investment was 14 percent, well, less than the 35 percent on the note or a similar investment. And that means that your after tax yield after you pay taxes is 5.15 percent. So you can see why a directly held real estate real estate investment trust with tax advantages like this. You can see why people love the tax advantage of real estate. And by the way, to get the same 5.15 percent after tax yield on my note, I would actually have to yank that up to about a 7 almost an 8 percent pre-tax yield or interest rate, which is hard to do because people won't pay more than they have to pay. So it gives you an idea what the tax advantages of REITs. OK, pros and cons. Why are REITs so popular? One is diversification. It allows you to diversify your portfolio from not just stocks and bonds to stocks, bonds and perhaps real estate. So here's an example of that. Now there's two circles here. I'm going to ask you to focus on the first one. The first one is a circle, a chart that represents 60 percent stocks and 40 percent bonds. Well, during a 20 year period, the same one we talked about earlier ending 2019, so 20 years is a good period of time. The return rate for a 60 40 portfolio stock bond was 5.71 percent. And the volatility rate was 7.1. Now I don't want to go into a big explanation on volatility and what this number means, but I will say that the lower the volatility number, the lower the volatility of that portfolio is. So you really want a lower number and 7.1 is not a terrible number, but still it's 5.7 return rate with a 7.1 volatility rate. If I simply added during that same time, 10 percent commercial real estate REITs in there, right, then I would have come up with a return rate that is 30 pieces points higher, 6 percent than the other 60 40. And I would my volatility would have dropped by about to 6.4 percent instead of 7.1. And remember, we want more less volatility. We want a lower number. So you can see just by adding 10 percent rates in there. During that same period of time, it would have improved performance and reduced volatility, which most people seek from their investments. OK, a few more than we'll take a few questions. It's non-correlated. What non-correlation means is that when what non-correlation means, excuse me, is that when the stocks go up, it doesn't mean that the REITs will follow or when the stocks drop, it doesn't mean that the REITs will follow. So in that regard, they're non-correlated just because you hear the stock market news and it's one. It's a big news increase or decrease one day doesn't mean that REITs will follow. So it gives people a little bit of way to to average out their risk reward experience. OK, these are institutional rule states investments. These are big buildings, typically 10, 15, 20 million dollar buildings, 50 million dollar buildings. It's the stuff that you see when you want, when you go into San Francisco or Oakland or San Jose and the things that you can't imagine owning. And by being part of a REIT structure, you might own a brick of that, perhaps. And you're on the board with that. It's passive income. And in my experience, that's really what most people want. They really what they really want real estate for is they wanted to generate income for themselves and their families and want to be passive and they want to allow them to work less and relax more. And that's really what the the main thing is. Now, it's passive and it's tax advantage. And by the way, it's not quarterly, the stock market. Boy, that's great. They're low minimums. That's why they're popular. Even somebody, though, with two hundred thousand dollars of of equity, who would otherwise invest in a property on their own, they may not want the hassle of the management. They want may want something more passive and already generate an income where they don't have to worry about all the other stuff, especially in the last year where we saw landlords really had to compromise a lot with, you know, what they could do with tenants and what they could do to collect rents and so on. If you're the actual investor in that, it was probably a challenge for you. It was a challenge for the runner and it was also a challenge for the investor. And then also people love real estate. I mean, they people cannot get enough of it. When real estate is going well, people love it. When real estate is going poorly, people see opportunity. It's not the same with stocks where people's the market goes down. People get scared and they want to sell. When real estate, they see opportunity there. So people love real estate. So Nancy, I think we'll I think we'll open it up here and we'll take some questions and see see what we've got. OK, well, the first question is are REITs audited by certified public account third party? Yeah, that's a great question. The so they remember there's two different types of REITs. One is the private ones and the other ones are the public ones. The public ones are but they're the the range of quality of REITs are great. So you want to stick to the higher quality REITs that do have third party auditing and they do make these reports available on a regular basis that do have to report to the SEC and also are accountable to the financial regulatory organization called FINRA. So yes, they can be not necessarily on the private side, but on the ones that we've been talking about. Yes, but you still want to go ahead and do more research and make sure that they're on the higher end side so that you're getting the benefit of all of that due diligence in that reporting. Great question. Great. On your slide, where it says how do REITs perform? The one with REITs goal and the S&P 500. What does EA FE stand for? Oh, that's a foreign stock exchange. That's a symbol for a non a domestic or non U.S. stocks. OK, and this question I'm not sure I completely understand, but the QBI deduction is that they're asking is that for active managers or passive investors? Yep, has nothing to do with either of that. It has to do with the structure of the investment itself. Or a QBI is also good for some professions. Some business owners can take QBI. I think like I think real estate investors are a good example of real estate brokers are one. CPAs, a lot of business because it can take QBI deduction, but many of the REITs can take it as well. OK, so questions here. And another one, how do REITs go up and down in value with inflation? How does inflation affect them? Typically, so I can't speak universally for all the REITs, but typically inflation is good for real estate and REITs. The reason is because when there's inflation, that means there's increased increased cost of goods. Whereas there's an increased cost of goods. It means that the landlords need to increase through rents. So that's what happens. Everything goes up and then includes real estate. Real estate is right there with the rest of everything else. And it's counted as part of that cost living index too. So it's inflation. Inflation is not great for everybody, but for REITs and REIT investors is generally good news. So we'll take one more and then we'll go back to the presentations. OK, actually, there's two similar ones, but someone said if Amazon is successful in taking over brick and mortar retail, would that hurt REITs and is the working from home trend affecting REITs? OK, gosh, great questions. I love those questions. So Amazon, you know, if they're successful, the brick and mortar, which means that they go more on retail and they're more in our local neighborhood rather than entirely on our front doorstep is what that means. They don't own a lot of the properties that they use. So it is so, for example, I'm here in Pleasanton. I'm here in San Ramon and the Stone Ridge Mall is having a struggling keeping their doors a couple of retailers in there. Amazon is working out and it was not Amazon. It could be anyone else working out where they take over some of the major space there and be able to use it as an outlet. So actually, Amazon might actually say that shopping center. It's actually more of a shopping mall. So I was I could do do very well on that. And a couple of the recent we offer in many of them, Amazon, especially the warehouse REITs, Amazon is a major tenant. So and the reason is they rather least than own because it's off their books and they're not to real estate heavy. You know, they're not a real estate company. Regarding the second thing with COVID and the how I think the question is essentially how it's changed REITs. Some REITs really did very well and some didn't do so well. So I think you'll I think the person asked this question will follow this. The REITs, the category that didn't very well is hospitality. Hospitality is basically hotel resorts, that sort of thing. Those hurt. I mean, they had a drop of about 40, 50 percent in value as well as a corresponding drop of income now. So now they're stabilized. Some of them had to go out of business. They're not when they're REITs, that means they have lots of them. They they the REIT doesn't go out of business, such as some of their properties might not do well. I haven't heard of any hospitality doing terribly. But I have heard of people who own hotel space doing poorly because of that, but they're not part of a restructure. So that's one. The other one is medical centers and facilities, especially elder care. Those REITs didn't do as well, because that was a scary place to be in the last 12 months. On the other hand, an office did actually pretty decently. Office is still kicking out an income because the REITs by office buildings with large tenants that guarantee that basically are required to pay no matter who shows up shows up to the office or not. So the office rates actually didn't do so bad. And warehouse REITs really took a rise. They did. There's not enough for them out there. They can't build in fast enough. So it depends on which, you know, which category. I think the the opportunity is to be part of a mix of different types of REITs. There's funds out there, REITs, that actually go into different areas like, you know, data centers and power lines and that, you know, all these different types of things. And they mitigate their loss by being involved in any one category. Great questions. OK, we're going to come back to this in a few minutes here. Let's get back to our regular programming. Oops. There we go. OK. Nancy, can you see the slide? Not yet. OK. Do this again. OK. There's that look. OK. Thank you. OK. So on we go. What are the primary risks? And this is something that's really important to think about. People always underestimate risk. And they're so eager to do something that they don't think about that. So to pay attention to some of these here, not real estate trusts or any sort of real estate investment is not suitable to all investors. And sometimes you just don't have enough money to make it happen. Sometimes you got to pay the bills and keep the lights on. Sometimes it's better to be boring for a while and just be stable. So it's not suitable for everybody. There's never a guaranteed performance. Anything that's invested, anything that's not in cash is an investment. Anything that's investment is speculative. So there's certainly no guaranteed performance. Upon liquidation of a REIT, you might actually end up with less than you started out with. So there's that possibility. There's a possibility of loss. There's limited liquidity with non-traded REITs. You're relying on fund managers to make the selection for you. I think for most people in general, it's better to have an expert do it for you than not, but just something to know that you're relying on that manager, that team. And there's various economic factors that can play into the performance, interest rates, legislative risk, which is law. You know, how will they change the laws to change the benefit of the investment that are bought offering expenses, insurance costs, and a turnover, that sort of thing. OK, so those are good risks to consider. Typically, the question is in this sort of format, you know, then what should I be looking for when I think about a real estate investment trust? And what I put together here is a page of considerations. And I broke them down by types, investment objectives, portfolio statistics, distribution, taxation and debt and leverage. So this is a really good starting point. I think that if you went through and understood most of this about the investment you're making, you are much better informed than most investors when they decided to make this sort of investment. OK, so I hope that you can use this chart. By the way, the slides are available to you. I think there's a recording that will be posted as well. So you're welcome to revisit this if you like. My email address is at the bottom. So if you have questions, there's something like some sort of direction I can provide. I'm up for a quick message like that. So feel free to reach out to me. OK, so we're going to talk about a real set example here called a read story. And we're going to use a case for a warehouse and industrial. So what I consider what most people consider the most boring asset real estate asset class out there or property type. Apartments are interesting. Office buildings, retailers, they're vibrant. These things you drive by on the highway. So most people don't get really excited about owning an industrial warehouse. Right. But I want to I want to make a case for why it's not a bad thing to consider. All right. First of all, look at the increase in population over time. So I've got it from 2015 to projected 2045. Now, right now for 2021, it's we have about 330, 335 million people in America. OK, it's expected to get to 300 and almost 60,000 by 2030 and by 389,000 by 2045. That is a huge increase in population here. One person is gained every 14 seconds. That's quite remarkable. OK, so the case for warehouses. One is the population growth. Population growth is very big. The second is that whoops with the increase in population and the increase in our individuality here because we all want something that's unique or different for us. They have a lot more skews, what's called stock keeping units. So whenever you see a barcode and you see a shampoo that's one type, but it's in four different sizes. Those are four different skews, right? And you multiply that by the type of shampoo and damage, non-damager, whatever you like, all the toothpaste out there. Everyone's got a skew. So there's more and more of these being created, not less. So when you have more skews, it means you have more products. That means you have need more space. There's global manufacturing. I mean, we're trading more than ever before. And then there's finally e-commerce revolution. And that means that more things are ended up at our doorsteps than ever before as well, especially in the last year. Companies of all these things make a great case for why more warehouses will be needed in the future. Here's the actual role of a warehouse in the life cycle of a product. And we're going to use toothpaste for a moment, right? So here's if you I'll read this through with you, I'll kind of skip through it a bit, but warehouse distribution, warehouse number one, this is where all the raw material goes before it's brought together to make the toothpaste. So there's different warehouses all around the world. And then then they're brought together in the second second panel here and they're manufactured somewhere. Let's assume that's not a warehouse for a moment. And then they're done with manufacturing and they ship them out to another warehouse. All done in these big boxes ready to be shipped out. OK, then it goes to warehouse number three in this cycle. And that generally is a warehouse somewhere in the region where it's like a stop before it gets parted out. And then warehouse number four is closer to your home. And warehouse number five is the last place at the Safeway or a Walmart or even if it's upon your doorstep, that's the last that's the point of sale. So in this, not including the manufacturing, there's four warehouses being used for a tube of toothpaste. All right. So that's just for toothpaste, by the way. That's not for that does include all the other things out there. Let's see. So that's the case for warehouses. I will tell you this. I will add this that since I really started focusing on real estate and financial planning over the last 16 years, warehouses have been probably according to Price Waterhouse Cooper. They have been in the slightly higher than average return rate for commercial properties and slightly lower than average volatility or risk rate for commercial properties. So they've been in that nice quadrant there for the entire time, pretty much. So something to think about just because it is boring doesn't mean that it's not a good thing to think about. Finally, we're going to go into three examples of REIT buyers. And I'll try to make this quick so I can take questions here because I know we're about 15 minutes away from being done. REIT investor number one, OK, Mort and Biddy Gage, their retirement bound. All right. So let's see what their situation is. They are retiring. They have an interest in real estate investing. They have income needs in their retirement of $95,000. And their social security is going to take care of $60,000 of them. So what that means is that they have an income gap that they didn't have before retirement of $35,000. So the question is, how do we solve this gap? Well, just to give you some more background, they have cash of $150,000. They have investment accounts of $700,000 and our account our accounts of $500,000. That's what they've got. So here's one approach. There's different things. There's different things to consider, you know, but here's one approach. They invest $100,000 each in two tax advantage REITs. Right. One is a triple net REIT, which means simply that there's not a lot of expenses that generate a 6% yield. And because there's 6% yield, it means that there's an 8% tax equivalent. Remember that chart we showed you earlier. So let's say that 6% really means 8% before the tax advantage or 8% for any other investment that they would have to match that. And there's a global warehouse REIT, you know, like the one we talked about before, that had a 5% yield and a 7% tax equivalent. Well, what this says is that if they do the $200,000 there, and they get that return rate, the REITs will generate $15,000 of income. All right. So we've taken $200,000 of their $1.2 million and that leaves them a million dollars left to generate the other $20,000 of income, which is only 2%. So really taking the heavy lifting, the REITs taking the heavy lifting of the income helps them relax and say, can I can I pull out 2% of my million dollars for a while and make that work? And the answer is probably yes, as long as they do a good job behaving on all the other investments. OK, so the benefits of the decision is that they got their first vacation like they're hoping for. They have non-correlation so that the investments in the REITs will be different than the other investments. The REITs cover 43% of their $35,000 gap. They have tax advantage income and they have other assets to solve for other needs. Perhaps there's long-term care down the road. They might need cash and some of the other million dollars. So there you go. There's more embedded gauge in the case for them. OK, number two, here's a younger family. We're going to go to the other side of it. Some of you are the thirties. They call the younger family and there's a call. That's a greater calling. So the situation is this, the dad is a top income producer. Mom is a higher earner as well. They're great savers. OK, and mom wants to spend more time with kids now. So the problem of the challenges is how do we replace her income? Well, here's one approach again. We invest in dividend producing assets, not REITs, but there's other assets that produce dividends out there that are tax advantage. Right now, a very good fund on a dividend produced being basis is about 45%, 4 to 5%. And it's tax advantages, tax at a dividend rate, which is lower for most people. It's at 15% instead of our ordinary income tax rate. So there's that. They can do also a private note. They can do a high dividend, large company stock. OK, they can do a diversified income producing REIT. So there you go. There's different ways to produce the dividends, replace the wife's income. OK, the benefit of the decision is that there's diversification again, non-correlation, a mix of ordinary and tax advantage income. Most people like that, but they don't know exactly how to achieve that. And more time with the kids, most importantly. OK, last one is a single woman named Broker Bar Barker. I don't know why I made that so tough for myself. If she's seeking a hedge, let's see what that means. Her situation is that she's a high income earner. All right. She is 100% in stocks and bonds. So she can relate to real estate because she sells it. She's a real soup broker. She's broker Barb. OK, she wants to avoid the active management. She's seeing how actively managing real estate has been a little bit challenging for some of her clients. She wants to avoid that because she really enjoys just selling the real estate. She has a self-directed IRA account. This is important. OK, and she won't retire for another 10 or 20 years. So here's the thing about Barb. She doesn't need the income, but she wants diversification. The REITs generate income. When they generate income, they are taxed. That's where the SEP IRA comes in. If you put the REIT in the IRA account and it generates the income, it'll simply grow the IRA account balance, but it won't be taxed. So this is a great use of, especially in this situation. So one approach is she uses her self-directed IRA account to make a read investment. She splits the read investment among three different REITs. So that way she's allocated among the REITs. She has different property types. One read is perhaps opportunistic or as aggressive. She can take a little bit more chance on that, a little more risk reward on that. The benefits are that she got diversification and the non-correlation. It satisfies her anxiety around being too concentrated, too. She wanted that hedge. So satisfies the anxiety about being too concentrated in stocks and bonds. Real estate is an income that's taxed and deferred in her IRA account. And she's got a long time horizon. That three to nine years will work out perfectly for somebody to retire in 10 to 20 years. And by the way, this is really important. She can also use this as an example of a test on REITs before she retires, because once she retires, then maybe she would want to buy some REITs under her taxable accounts in that way, that income will be taxed advantage. All right. So those are our examples here. I'm going to skip this one here, the buy or sell thing. I'm going to leave this to all the good folks on here. Here's my contact information. Don't abuse it, but use it if you need. Happen to help out and be a traffic cop on your questions. All right. Let's go back to your questions then. Go ahead and stop sharing. OK. There are a number of questions about where should they do research to find a good REIT or to research more in depth, a particular REIT. And how do you determine as you're doing your research if it's a high quality REIT? Let's see. There's a couple of different questions. Let's tackle them in order. One is how do you do your research? It depends on which direction you decided to go. If you decided to go on a traded REIT or so available on the exchange, you can buy it on Schwab, that sort of thing, there's lots of research out there for these REITs. So in fact, they actually give ratings in the compare REIT. So there's a lot of data out there. You can do that through your platform that you're on, whether it be Fidelity or whatever it is. So there's lots of resources that way. That's taking your research. I would use my grid that I created earlier as a baseline for sort of things to look for when you do your research. So put those two together and you're probably off to a good start. In terms of the non-traded REITs, the suggestion, those are harder to get because because you're non-traded, that means that they have to go through a financial advisor who is authorized to sell them. Not all the advisors out there are licensed or have the licenses to sell these non-traded REITs. They're not commissioned. They can be commissioned. They can be fee. So it's not about fee and commission. It really is about having the licenses to do that. That person would have the information that you would need for that because if they're non-traded, that means that they have to go through that filter. You can go ahead and look for non-traded REITs and do some research. You get some done on the web, the websites of those REIT companies themselves. But probably since these are generally going to be purchased from an advisor, you might want to establish a relationship with an advisor like that and then let them know what their goals are, try to match up your goals and what they have and then go from there. And they'll kind of streamline it for you and get you all of them. But in the very end, with those non-traded REITs, you get a lot of information. You get the prospectus. There's a lot of material in there. It's probably more than you would expect. And certainly it'll check all the boxes. So that's how you do that. How do you end up with a higher quality REIT? You know what? I think what you look at is you look at a couple of things. The one is the property type they invest in. Second is the management team. There really is a big difference in management teams out there than all the same. And the third is the experience of the track record of the fund manager because they have more likely more than just that one fund that they're offering. They've had other ones and they've had other funds go through full cycles. So you can look back and see on their track record how they've done and how they've weathered the tough times. And if they had a bad year or two or three, I think the question is to learn more about what happened during that time because just because it was bad doesn't mean it was a bad manager or bad fund. It could have been just a bad period for that asset property type. So I think that answers most of that question, Nancy. Yeah, definitely. And you kind of answered this too, but can REIT sometimes result in a passive activity loss? Yes, they can. Yes, so on a REIT, a passive activity loss would be that you lose. Let's say you buy it here, ten dollars a share. You sell it at eight dollars a share, most definitely. It's like any other investment. If you sell it at eight, you got two dollars a share, lost times the number of shares you have. And you would write that off against other passive gains that you would have. OK, and then another question. Are there state tax advantages to REITs? No, there's not. One thing I don't know is I don't know the impact of QBI to each state. So I don't want to carve that out and say to ask your tax person for that. But otherwise, there's no tax advantage. They're not like muni bonds where there it could be good or not not reusable in the state that you're in, not the same with the REITs. And then someone directly asked for if you have a suggestion for a REIT, a traded REIT mutual funds. You know what, I don't have a recommendation for that person. But I do have a fund that I I've been looking at for a while now. They have a good track record, but I would I would encourage this person. This is not advice for them and not a recommendation, but I would encourage them to look into more and talk with their advisor, their tax person, so on to see if it's suitable because it could be not suitable at all. But I like the Conan Sears realty shares REIT. They you'll see when you go back to actually through even through covid. They did a decent job. There's a lot of good trade REITs out there that they can get. I like that one. That's a good place to learn and then decide to pick work with your professionals to figure out which one you want to eventually go to. That's a freebie. There you go. Excellent. Thank you. And I believe we've covered all the questions. Wow. OK. OK, folks. Thank you very much, San Francisco Library, for allowing us to cover this topic and spend time with your membership. And how do you spell Conan and Sears? Your recommendation. You're right. Yeah, now that he's now that this person spells it that way. C-O-N-A-N Steers S-T-E-E-R-S. And if you have the fund is realty shares, they have several different funds. They've been around for, I think, over 40, 50 years. But if you, yeah, Conan Sears, thank you, Elizabeth. That's the one C-O-H-E-N. That's what was throwing me off the Conan thing of Conan O'Brien for some reason. But C-O-H-E-N is the right spelling. Thank you. So I think that's it. I'm almost embarrassed that we're done early. So OK, Laurie, is there anything else on our side that you need? Now, thank you so much, Rich. Thank you, Nancy. We really appreciate you taking the time to share with us your professional expertise and thank you, everyone, for joining the program. I hope you find the presentation informative. We'll send out the evaluation survey together with the site deck and the link to the recording later this afternoon. And please give us your feedback so we can continue to improve. Again, thank you, everybody, and have a wonderful afternoon. Take care. Take care. Bye bye. Bye bye.