Real estate versus REITS? Monthly updates

 

My friend R. is brave. He is buying real estate and rents it out. That requires capital outlay and dealing with renters. 

I am not so brave. I don't want to commit significant capital to one or two particular items and I don't want to deal with renters. 

A lot of time will be spent on looking for the property, finding and screening renters, dealing with repairs and complains.
What if one of the renters turns out to be aggressive or crazy? When I was renting some time ago, the woman  in the apartment above said that her cats are attacking her and decided to flood the apartment to get the cats out.
Or what if there will be an eviction moratorium like it happened at the verge of Covid-19 epidemic? The property owners still had to pay the mortgage but couldn't get any rental income. 

I feel more comfortable to research the alternatives online, maybe find some real estate stocks and have them instead of the "real" real estate. Owning real estate stocks may be overall more risky and less profitable. The risks are of a different kind: stocks don't appreciate as much and the dividends don't increase like the rent does with the inflation. Taking those risks will be my "pay" for that potential difference in the appreciation and for not needing to deal with renters. 

On the equity markets  there are different options  available. Some REITs are owning mortgage contracts and some own real life real estate. Some own malls or office buildings, some own residential real estate or medical facilities. 

I am getting a mixture of several types.

Periodically (at least yearly) I will compare the two ways owning real estate of using stocks. I am curious to see how much will I "pay" for avoidance of dealing with renters.  

One of B.'s houses was purchased in cash, $225,000 and it brings in $1,500 rent per month. This is before property taxes, insurance, possible fixing costs. Removing those additional costs it may be about $1,250. I am not really sure, I am trying to stay conservative. 

This would be 6.7% return on the investment. That is before income taxes. If I use REITs, the dividends will be taxed at the same rate as rental income unless you have a corporation or some other entity for your rental properties which would be additional pain for me. If I can make 6.7% per year in dividends then this "rental income" will be comparable to the above example of a condo for $225,000. 

I am OK with less appreciation because my preferences are on the cashflow site versus long term appreciation. I want to have the money now, a steady cash flow all the time. I don't know when I die, and if it happens suddenly and early, I will not benefit of long term appreciation.  

I already have one group of REITs which I kept for several years. The total amount invested is $211,253 and this portfolio group gives me dividends calculated per month $1,184. This is 6.72%, which is pretty much the same what R. gets from his rental property. 

R. just got another rental property for which he didn't pay cash but used mortgage. 
I am starting another REITs group with which I will have a bit more work and will use leverage too (since mortgage is leverage). 

I selected a few REITs and I will use a mix of holding, trading and options use.

The property is  again $210,000 and after 20% down there is a mortgage on the remaining 80%. He gets $700 after all other expenses including mortgage payment. The mortgage will be paid off in 30 years but I am not interested in comparing profits after that because I might be already dead by then, and if I am not, I hope I will not need to worry about any small differences. 

So after leveraging 80% there are $42,000 which he paid in cash. With $700 rental income that will be 20% on the cash outlay.   

I am not sure that with my second REITs portfolio I can get 20% return. I think that will be quite difficult. It will also require more work. I am curious to see what I can reach. If I will get over 10% I will be OK with that. If I will get less than 6.7% , I will stop active work on this group and convert it into a passive one like my first group which gives me 6.7% with no work.  

This post will be updated with the data. 

July 2021

Cash flow:

Stocks: 0
Options: $1,453
Capital: $80,000  

OHI -2Jul21 $37 put: $100
OHI -2Aug21 $36 put: $190
CTRE -8Aug21 $22.5 put: $274
MPW -10Aug21 $20 put: $443
SBRA  -10Aug21 $17.5 put: $446

Total cash flow for July 2021: $1,453 - 1.8%
Cumulative for year 2021: $1,453 - 1.8%

August 2021

Stocks: 0
Options: $338

Capital: $80,000  

OHI -2Sep21 $36 put: $338

Total cash flow for August 2021: $338 - 0.4%
Cumulative for year 2021: $1,791 - 2.2%

September 2021

Stocks: $1,823
Options: $394

Capital: $80,000

DOC stock: $370
MPW stock: $1,453
CTRE -8Oct21 $22.5 call (covered): $394

Total cash flow for September 2021: $2,217 - 2.8%
Cumulative for year 2021: $4,008 - 5.0%

October 2021

Stocks: $950
Options: $0
Dividends: $441

Capital: $80,000

DOC stock: $265
DOC dividend: $230
CTRE dividend: $212
MPW stock: $685

Total cash flow for October 2021: $1391 - 1.7%
Cumulative for year 2021: $5,399 - 6.7%

November 2021

Stocks: $0
Options: $0 
Dividends: $568

Capital: $80,000

SBRA dividend: $300
OHI dividend: $268

Total cash flow for November 2021: $568 - 0.7%
Cumulative for year 2021: $5,968 - 7.5%

December 2021

No trades or dividends

Total for 2021 (July - December) - 7.5%

January 2022

Stocks: $1215
Options: $0 
Dividends: $0

Capital: $80,000

Total cash flow for January 2022: $1215 - 1.5%
Cumulative for year 2022: $1215 - 1.5%

February 2022

Stocks: $0
Options: $0 
Dividends: $434

Capital: $80,000

Total cash flow for January 2022: $434 - 0.5%
Cumulative for year 2022: 1649 - 2%

March 2022
No trades or dividends

April 2022

Stocks: $0
Options: $0 
Dividends: $514

Capital: $80,000

Total cash flow for January 2022: $514 - 0.6%
Cumulative for year 2022: $2163 - 2.7%

  

May 2022

Stocks: $0
Options: $0 
Dividends: $434

Capital: $80,000

Total cash flow for January 2022: $434 - 0.5%
Cumulative for year 2022: $2597 - 3.2%

June 2022
No trades or dividends

July 2022

Stocks: $0
Options: $0 
Dividends: $514

Capital: $80,000

Total cash flow for January 2022: $514 - 0.6%
Cumulative for year 2022: $3111 - 3.9%

August 2022

Stocks: $0
Options: $0 
Dividends: $434

Capital: $80,000

Total cash flow for January 2022: $434 - 0.5%
Cumulative for year 2022: $3545 - 4.4%

September 2022
No trades or dividends

October 2022

Stocks: $0
Options: $0 
Dividends: $514

Capital: $80,000

Total cash flow for January 2022: $514 - 0.6%
Cumulative for year 2022: $4059 - 5.1%

November 2022

Stocks: $0
Options: $0 
Dividends: $434

Capital: $80,000

Total cash flow for January 2022: $434 - 0.5%
Cumulative for year 2022: $4493 - 5.6%

December 2022

No trades or dividends

Total for 2022 (January - December) - 5.6%

Summary: 2022 was the year with markets going down. I didn't make any trades except in January. 
The total cash flow for 2022 with dividends only was 5.6%, Compared to 2021 where I did some trading in addition to the dividends it was less: 5.6% in 2022 versus 7.5% in 2021 (July-December only). 

Without doing any trades, getting dividends only, I get 5.6% per year. For now I will just wait till markets stabilize. If I will do any more trades, I will add below.  

Is Corona coming back? 8

Today there was an email saying that at our hospital system we are all going back to universal masking regardless of vaccination status and that all in person public events will be cancelled.

The reason is that in the last 7 days the Covid-19 related admissions have tripled from  46 to 120. 

Let's see how the graphs are looking on the www.worldometers.com. 

  

The new cases are not as relevant as the deaths. The case numbers depend on how much is tested but the deaths are independent from that and are better indicator of the real picture. 

The deaths stick up a bit in the last weeks. That makes me sad because it looks like restrictions might be coming back... 

Royal Caribbean options play. Monthly updates

 

Our family likes to go on cruises with Royal Caribbean. 

They cruises are expensive but enjoyable. 

Recently I found something new to me: Royal Caribbean will give you a statement credit if you own their stock. 

At this time, after they were hit by Corona, their stock is still relatively low and I decided to look into it, to see if I can do anything with that.

Here is the link to the official site with the complete information to stockholder benefits.  

The summary for RCL shareholders as of July 2021:

1. Any shareholder of a minimum of 100 RCL shares at the time of sailing can get $250 onboard credit per Stateroom of 14 or more nights, $100 credit for 6-13 nights and $50 credit for 5 night or less. 

2. The credit is per room, not per person. 

3. Check the eligibility when booking (applicable on any eligible Royal Caribbean or Celebrity Cruises, excluding carters and Galapagos sailings). 

4. Two-three weeks prior to sail date you can mail, fax or email the proof that you own RCL shares with the current brokerage statement or a current trade confirmation  along with your  sailing date, name of vessel and reservation/booking number. Email to shareholderbenefit@rccl.com. You can complete your Shareholder Onboard Credit Offer Request electronically here.

5. Only one shareholder credit per stateroom on any one sailing, based on double occupancy. one shareholder credit per stateroom, and one credit per shareholder per sailing.

6. you may request this benefit multiple times-as often as you sail on Royal Caribbean International or Celebrity Cruises.

7. Onboard credit may not be used for onboard service charges or pre-purchased activities. Any unused credit after the final night of the sailing shall be forfeited and is not redeemable for cash.

With questions you can call the Shareholder Benefit Team: (954) 628-9325, option #3.

What can I do to get more than that? 

My thoughts were:

Option 1:

I can buy RCL shares (current price $85.51 at the time of writing/thinking) and hold them. I will get the statement credit when I book and I will get the dividends for holding the stock.

Option 2:

I can use options and not own the stock outright. In case the options will be executed, I am OK with owning the stock.  I might get more that way. 

I decided to go with Option 2. 

The stock price is still low. The dividends are $0.78 per stock per quarter, that will be $312 per year if you own 100 shares (before taxes). 

If I buy and hold 10 RCL I will have $312 in dividends (before tax) and get statement credit if I go on the cruise (probably $100 since we usually go for 7 days).  

 

If I have luck and the options play goes well, I could pay the entire trip with the option play proceeds. 

We are not planning the trip for 2021 or 2022, I will wait till all Corona related rules and restrictions settle. 

So I have about 2 years for the play. 

Our trip is about $6,000-7,000 when we book. That should be at least $10,000 in option proceeds before taxes. 

So with all that my goal is at least $10,000 in the timeframe of 2 years. 

I am allocating approximately $24,000 to that play. The return in 2 years should be about 40% or 20% each year of play. This is quite a bit, it will probably be difficult to reach. 

RCL OPTIONS PLAY

Start: June 2021
Finish: still ongoing
Updates: monthly

UPDATES

June 2021

I sold 3 puts on June 22nd for the credit of $411 after fees (-3Jul21 $80 put). 

I made $411 for this trade and it will be about $250-300 after taxes. This is already more than the stateroom credit for owning $100 shares. But I sold 3 puts which was equivalent of 300 shares.

-3Jul21 $80 put - this trade:$411 - total:$411 - percent this trade 1.7% - percent total- 1.7%  

July 2021

The puts were executed on July 19. I own 300 RCLs.  

August 2021

I sold 3 calls against the 300 RCL shares on August 4 (-3Sep21 $80 call). It is a covered call and if the share price will be $80 or above, the options will be executed. I will make nothing on the shares, since I got them for $80, but for the selling 3 call options I got credit of $709. 

Total so far: $1,120 (4.6% return on $24,000)

-3Jul21 $80put - this trade:$411 - total:$411 - percent this trade 1.7% - percent total 1.7%
-3Sep21 $80call (covered) - this trade:$709 - total:$1,120 - percent this trade 3.0% - percent total 4.6%  

September 2021

The September covered calls were executed and the 300 of RCL were sold at $80. Currently the stock is at $82. I sold 3 October $83 puts for $990. Capital in play now is $24,900.

-3Jul21 $80put - this trade:$411 - total:$411 - percent this trade 1.7% - percent total 1.7%
-3Sep21 $80call (covered) - this trade:$709 - total:$1,120 - percent this trade 3.0% - percent total 4.6%
-3Oct21 $83put - this trade: $990 - total so far $2,110 - percent this trade 4% - percent total so far 8.8%

October 2021

Sold naked puts for 35 days till expiration: 3 November $82 puts for $730. Capital in play is $24,600. 

-3Jul21 $80put - this trade:$411 - total:$411 - percent this trade 1.7% - percent total 1.7%
-3Sep21 $80call (covered) - this trade:$709 - total:$1,120 - percent this trade 3.0% - percent total 4.6%
-3Oct21 $83put - this trade: $990 - total so far $2,110 - percent this trade 4% - percent total so far 8.8%
-3Nov21 $82put - this trade: $730 - total so far $2,840 - percent this trade 3% - percent total so far 11.5%

November 2021

Puts got executed, now I own 300 shares at $82.
Capital in play is $24,600. 

-3Jul21 $80put - this trade:$411 - total:$411 - percent this trade 1.7% - percent total 1.7%
-3Sep21 $80call (covered) - this trade:$709 - total:$1,120 - percent this trade 3.0% - percent total 4.6%
-3Oct21 $83put - this trade: $990 - total so far $2,110 - percent this trade 4% - percent total so far 8.8%
-3Nov21 $82put - this trade: $730 - total so far $2,840 - percent this trade 3% - percent total so far 11.5%

December 2021

No trades or dividends

Total for 2021 (June - December) - $2,840 (11.5%).

January 2022

Sold calls and now have 3 covered calls and 300 shares (-3 RCL Feb22 at $85) for $1140. Capital in play is $24,600. 

-3Jul21 $80put - this trade:$411 - total:$411 - percent this trade 1.7% - percent total 1.7%
-3Sep21 $80call (covered) - this trade:$709 - total:$1,120 - percent this trade 3.0% - percent total 4.6%
-3Oct21 $83put - this trade: $990 - total so far $2,110 - percent this trade 4% - percent total so far 8.8%
-3Nov21 $82put - this trade: $730 - total so far $2,840 - percent this trade 3% - percent total so far 11.5%
-3Feb22 $85call (covered) - this trade: $1,140, total so far $3,980 - percent this trade 4.6%, total percent 16.2%

February 2022

Sold stocks, received $450.
Capital in play is $24,600. 

Total so far: $4,430

March 2022

Sold calls and now have 3 covered calls and 300 shares for $1907.
Capital in play is $24,600. 

Total so far: $6,337

March 2022 - April 2023

During this time the market was going down. I had no trades. I will wait till market stabilizes and continue my way to get $10,000 for the next trip. I already have $6,337 and still need $3,663. 

May 2023

Sold 3 covered calls for $406 (-3 RCL Jun23 at $77.5).
Capital in play is $24,600.

-3Jun23 $77.5 call (covered) - this trade: $406, total so far $6,743 - percent this trade 1.65%, total cumulative percent since start 27.5%

Total so far:  $6,743

June 2023

Sold stock for $204
Capital in play is $24,600.

Total so far:  $6,947

Pending update