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The Top Housing Play on the Market Is Now TradingBy
Tuesday, December 18, 2012
My friend, the day I've been waiting for is finally here...
As longtime readers know, I have been urging you to get your money into residential housing. Up until recently, the problem was that you had to roll up your sleeves and buy the property yourself.
But that is no longer the case...
Now, there's an easy way for you to buy a pile of homes through the stock market.
This "pile" of homes was bought at the right time... and in the right markets (as I'll show). Plus, most of these homes have already been rented out – which will lead to a nice income stream for you down the road. The opportunity I'm talking about is called Silver Bay Realty (NYSE:SBY).
I've written about Silver Bay before... It is a "spinoff" from Two Harbors, which is one of the recommendations in my True Wealth newsletter. Recently, Two Harbors announced it would spin off its residential real estate portfolio into a stock – Silver Bay – that only owns (and rents out) residential real estate.
Well, Silver Bay has just started trading. It has no debt and a pile of cash (roughly $225 million) for buying more homes. It will ultimately take over a portfolio of 3,100 single-family properties bought at the right prices and in the right markets.
When I say "right markets," I mean Phoenix, Tampa, Atlanta, and Las Vegas. These are the top four cities Silver Bay buys homes in. They're also four of the most beaten-down real estate markets in the country. The homes in these cities were acquired between 2009 and 2012. They were renovated (when necessary), and most of them have been rented out.
Smartly, Silver Bay is trying to get "real estate investment trust" (REIT, for short) status. That means it won't get taxed on its rental earnings as long as it passes on a substantial portion of those earnings to you as dividends. So it's smart to own Silver Bay in your retirement account, where you basically get the full rent tax deferred.
If you're already a Two Harbors shareholder, here's the deal you'll likely receive: a "special dividend" of Silver Bay shares... amounting to roughly 9% of your Two Harbors holdings, a value of roughly $1.11 per share. This will happen at least 90 days from now. (Keep in mind, I'm just crunching numbers and giving my best estimates of what should happen.)
If you're not a Two Harbors or Silver Bay shareholder yet, you should definitely look into Silver Bay... Buying shares of this company is a much simpler way to own U.S. property than going out and doing it yourself. You can buy and sell shares with the click of a mouse.
Good investing,
Steve
IMPORTANT NOTE: Silver Bay shares are thinly traded. So if you buy, make sure you use a limit order. This lets you determine the price you're willing to pay... and you won't get stuck chasing the stock higher because your trade won't go through if shares are trading above it. And don't pay more than 1% or 2% over yesterday's closing price.
Further Reading:
"Despite everything I've written over the past few years, I don't think most people understand just how extraordinary the opportunity in real estate is," Steve says. Catch up on his arguments for a cheap, rebounding housing market here...
"Right now is the moment to make your deal. The time for extraordinary deals like this will pass... quicker than you think."
"This is free money... Literally... This is money you have to take. I'm doing it. I'm not waiting around. What are you waiting for?"
"The best investment you can make right now is to own a portfolio of rental real estate... bought at foreclosure prices."
Market NotesAMERICA'S "MOST LOVED" COMPANY IS BREAKING DOWN Apple investors are learning an important lesson on the value of being a contrarian.
Apple remains one of the most popular brands in America this holiday shopping season. The company will sell tens of millions of iPads and iPhones during the current quarter.
Buying popular names is fine for consumers. But as today's chart shows, for investors... it's often a recipe for losses. About three months ago, Steve Sjuggerud summed up why he wasn't buying Apple shares... "Apple shares will peak when there is nobody left to buy – when everyone who wants to buy has already bought... At least in the near term, we may be getting close to that point." In short, investors and Wall Street analysts were in love with Apple... making the stock a poor choice for contrarians.
Since peaking on September 21, Apple is down 27%, and shares are hitting a nine-month low. There's no telling when the downtrend will end, but contrarians should take note: Apple is much less loved today.
– Larsen Kusick
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