Editor’s note: This article was first published in February 2021 and reflects market conditions at that time. It is general information, not investment advice.
The year 2020 changed a great deal, and real estate was no exception. Despite job losses and a global pandemic, home sales and fix-and-flip activity both picked up. The gains continued through the year, and some people began calling it a real estate revival.
For investors, the useful question was which parts of the market stood to benefit. One answer was mortgage REITs.
What mREITs have to do with flipping
A mortgage REIT, or mREIT, earns its income from interest on real estate loans, not from owning buildings. We explain how they work in mREITs Pay High Dividends, Despite 2020 Market Pull Back.
The link to house flipping is direct. In early 2021, everyone from experienced developers to first-time flippers was buying, renovating and selling homes, and those homes were selling quickly. Most of those projects were financed with loans. More lending, repaid on schedule, means more interest income for the companies that make or hold the loans.
Why that mattered to investors
An active flipping market gave people two ways to take part:
- Hands-on. Buy a property, renovate it and sell it yourself.
- Hands-off. Invest in companies that finance real estate, including mREITs.
The second route appealed to people who wanted exposure to real estate without managing a renovation. It’s one of the options we describe in 3 great ways to invest in real estate.
A word of caution
No investment only goes up. mREIT share prices and dividends are sensitive to interest rates and to how well borrowers perform, so do your own research or speak with a financial adviser before you invest.
If you’d rather be on the hands-on side, Sachem Lending’s fix and flip loans finance the purchase and renovation of investment properties.
