New Investment Avenues for Traditional Investors

Robert R. Tweed

By Robert R. Tweed,
Tweed Financial Services, Inc.

By Robert R. Tweed,
Tweed Financial Services, Inc.

Robert “Rusty” Tweed is President and Founder of Tweed Financial Services, Inc., a full-service financial and estate planning firm located in San Marino, California. Tweed Financial was founded in 1991 and has offered various aspects of wealth management and financial advisory services ever since.   In 1999, Robert Tweed was selected Estate Planner of the Year by the National Association of Financial and Estate Planners (NAFEP). For further information, contact: Tweed Financial Services, Inc. (626) 588-1520

As we all know, interest rates are still at an all time low. Ten years ago who would have believed in 30-year mortgage rates of 4.42%? Five-year US Treasury rates of 1.5 %? (, 1/13/14) And two-year CD rates of .83%? ( 1/13/14).

For mortgage holders, this obviously seems like a good time to refinance and lock in low long-term interest rates before these rates continue going up. Currently, we expect a two-year window for refinancing based on Federal Reserve Chairman Ben Bernanke’s statement that “We expect to keep the short-term interest rate at exceptionally low levels to at least mid-2015…” It looks like we are in this low-interest-rate environment for some time.

This is fantastic for anyone having to pay interest payments, but what about those relying on interest payments for income? Over 35 million Americans are retired and most of them were counting on investments put aside over the years to provide them with income for their later years. Today’s low rates are anything but fantastic for these retirees.

Not only are individual retirees being negatively impacted, but pension funds, institutional investors, and just plain individual investors seeking a low-risk stable return are finding their options limited. Traditionally, these investors might place a good sized portion of their portfolio in 10-year US Treasuries. In January 2000, a 10-year Treasury bond was paying 6.87% ( As of 1/13/14, 10-year US Treasury rates were 2.75%. (

This is forcing investors to look for alternatives that may offer higher returns. Money seems to be migrating to investments with a perceived reasonable dividend or cash flow. We call this “chasing yield.”

Witness the values of publicly traded Real Estate Investment Trusts (REITs) over the past several years. Back in 2007, the average REIT was paying 5.29%. The average dividend yield for REITs was about 4.3% in September 2012, well above the yield of the S&P 500 Index, but below the longer-term average for REITs. According to my observation, due to declining global interest rates, investors have turned to REITs to potentially improve their income. This has pushed the share prices of the publicly traded REITs up which results in the dividends being lower for current buyers. The same phenomenon has been seen with blue-chip dividend paying stocks, as well as for any reasonably cash flowing asset. Investors seem to be pouncing on stocks with a good dividend and bidding the price up.

So as an investor, where are the opportunities? Obviously, if one can find a good income producing investment that has reasonable risk, it may be worth getting into. As long as interest rates stay low, there is a good possibility that others will be seeking out the same investment and pushing the price up. So in the end, investors could be rewarded not only with better income than a low-risk bond investment, but there may be an increase in the asset value as well.

Another strategy is to find an asset that has an income stream that can be increased from its current rate. Increasing the income stream increases the yield and the asset’s attractiveness to other investors. Ideally, this will push up the asset’s price up and provide the original investor capital gains as well as the cash flow.

Non-traded REITs are a potentially viable asset to include in your portfolio. Typically, large non-traded REITs have a lot of cash behind them and thus have the ability to purchase larger properties than what are available to the average investor. Most REITs we are dealing with are paying higher than average dividends, 6-7%. As well, there is upside potential for the shares if the property values go up.

Naturally, there can be no guarantee that REITs or any real estate investment will continue to provide good cash flow or that property values will go up. Investors also need to realize that a non-traded REIT does not trade on a securities exchange, and because of this they are not easy to sell or transfer if their financial situation or the market changes. If interest rates do not remain low, as expected under the Federal Reserve’s current policy, REITs and other income producing properties could be adversely impacted. These investments also face a number of other risks from geographical and market area demand to changing economics and use patterns, management, and more.

Some examples of the types of investments that REITs purchase are; apartment buildings, medical buildings, nursing homes, mortgages, single tenant buildings, shopping centers, etc.

Another way that REITs can make money is by purchasing properties that can be improved and rented for higher rents, or by purchasing a building that has vacancies and potentially filling those vacancies, thereby increasing the cash flow to investors and again increasing the value of the asset.

The longer the interest rates stay down, the more attractive these types of income producing assets are expected to be and the greater the likelihood that prices will be bid up. As with any real estate investment there are material risks to commercial real estate, including but not limited to: illiquidity, limited transferability, tenant vacancies, loss of entire principal amount invested, and that potential cash flows, returns, and appreciation are not guaranteed. Past pricing structures may not be indicative of future pricing and may not result in positive returns. Real estate values may fluctuate based on economic and environmental factors.

It is important that investors evaluate the attributes of a non-traded REIT and seek appropriate advice when investing. We have the experience to help you evaluate if a non-traded REIT is right for your individual circumstances. For a personal, private consultation, give us a call at 626-588-1520 extension 105.

Securities products offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC.   Advisory services offered through Concorde Asset Management, LLC (CAM), a registered investment advisor.   Tweed Financial Services, Inc., is independent of CIS and CAM Tweed Financial Services, Inc., CIS and CAM do not provide tax or legal advice.

This is not an offer to buy or sell any security. Securities are only offered by Private Placement Memorandum or prospectus to suitable, accredited investors. Investments are highly speculative, subject to up-front fees and expenses that may impact investor returns and outweigh the tax benefits, are generally illiquid, the stated investment objectives may not be met, appreciation and income are not guaranteed, conflicts of interest may exist, and there is potential for the loss of principal invested. saa-16-0114