A guy at David Lerner Associates says I should buy a REIT. Given the current real estate situation, I was thinking that it might just be a good time to buy now for the long term. I had  been thinking about an International REIT index, a US index or A good fund like Cohen and Steers.

Has anyone ever heard of David Lerner Associates? The Sales broker says that he has exclusive access to a hotel REIT and gaurantees 8% return. Is this to good to be true?

If you are with Fidelity or any other reputable investment company I would stay with them if I were you.

I investigated the David Lerner Associates company in the past and they have many violations against them for FRAUD, deceptive practices, advertising etc. Its all on the Internet. If they promised you 8% every year THIS is a perfect example of deception.

You can google Apple REIT 9 and read the prospectus. The Prospectus shows everything.

For example David Lerner Associates takes 10% of you investments as a sales charge.

The Apple company take about 5% (2% commision to buy hotel, 1% per year to manage business and 2% when they sell hotels)so you are actually investing only about 87% of your money into this REIT up front, paying 1% management fees yearly and taking 2% on the back end). This doesn't show up on your statements because David Lerner Associates is allowed to hide this from you because of the nature of the investment is "buying shares" that have been designated as fixed by Apple .

Neither the 8% nor the $11 fixed price per share is guaranteed. Apple has the right to change this at anytime.

Since the price of the REIT is set by Apple and not the market - Apple can keep it priced at $11 for as long as they want, even if the properties have gone down in value or  part (13-14%) of your investment has actually been skimmed up front by David Lerner Associates and Apple.

What this essentially means is that the value shown in your statements is really fake. SInce you can't sell the REIT without penalty and you hold on - you really never know what it is worth until Apple sells the underlying investments. (this could take years) So reinvesting your so called 8% is really a bad idea. Then again if everyone tried to take the 8% as cash the REIT would go under unless they dropped the dividend rate way below 8%.

And try and take the money out even with the penalty- Good luck. Apple limits the withdrawl rate to below 5%. So every quarter your withdrawl request could be ignored.Can you imagine what would happen if everyone tried to take their money back. That is a risk that you are never told.

What the prospectus finally tells us is that this is a pyramid scheme - perfectly legal because it is disclosed.  Basically the way it works is Apple sells an initial amount of shares (usually at a discount) up front to make the REIT effective. Then they open up to new investors for up to 2 billion dollars. They pay out the investors the so called 8% NOT with hotel revenue -  BUT WITH OTHER INVESTORS MONEY- until the hotels come on line and the REIT closes. Therefore for the first few years you lose 13%-14%in hidden charges up front and receive you dividend from the proceeds of other investor's investments.

Of course this would be illegal if it weren't disclosed in the prospectus- but how many investors read the prospectus. Did you read it BRivers? I bet not.

the commission was 6% but the dividend you earn is based on the precommision amount.  i havent looked at apple 8 or 9  yet but i cant imagine they raised it to 10%   ... i dont know where you are but i dont know of any real brick and morter investments without closing costs... you arent buying a stock reit which trades violently either well below its worth or well above its worth based on the fear, greed and perception of the market.  you are buying into a partnership of real hotels , an untraded reit is more like a bond.   its value and dividend are based on real cash flow once the reit has its properties.      .   to tell you the truth just the mere fact we received almost 8% thru the early 2000's when interest rates were below 1% made the commission worth it.     if you could pay 6%  upfront and get 8% for years on the amount before the commission is taken out  with almost no risk wouldnt you?      yes they pay the dividend based on your pre commissioned amount.                 the apple reits have held the 8 to 8-1/2% dividends for well over a decade now.   i earned an average of almost 18%  a year  over 7 years with the sale of the last apple reit.       

there is no penalty for selling early, after the first year your shares go into the re-investment pool. there is a limit to how much each time you can put in.    but if your not going to hang on for 6-7 years dont do it.

i for one have found the apple reits very profitable and am on my 3rd 1.   2 have matured and been sold off for nice profits.

you also get a real depreciation allowance and only 88% of the dividend is taxable.  

there is noooooo 12-14% commission taken out at anypoint.   if you want to talk internal expenses yes there are all the expenses of runningand  owning your own properties and paying a managment company to run them.     bottom line is look at return vs risk in anything and   see if its worth it.their is no guarantee you will make money when the property is sold but thats just the bonus. the whole thing is worth it for the dividend alone.     i would be willing to bet in 7 years or so the properties will be sold for more again.

again bottom line look at your overall returns and then evaluate the investment for volatility ,return and risk.  .  if it was just about expenses most hedge funds wouldnt exsist.

erryl: I never knew you to be so "technical"......maybe the T/A guys are rubbing off on you? ;-)

Good points though

And he has it right.......

    What to buy now???  My next investment, probably this week, will be either bearx or grzzx.  Inverse funds are generally too volatile too handle and I want something that will short parts of the market for the next several months.  I think an actively managed fund is the best choice for that purpose. 

uh 

I am familiar with this investment.  The prospectus says that David Lerner Associates gets 10% as a cost of sales.  And that this 10% comes directly out of the initial investment proceeds.

It also states that the owner of Apple owns many of the companyies involved Like the real estate company that takes 2% to buy a property and 2% to sell a property. That is a conflict of interest since it benefits Apple real estate company in paying higher price for hotels. When you add the 10% to Lerner, 2% to Apple Realty and 1% upfront Apple management fee you get 13% right up front. 

I'm glad that you earned 18% over the past seven years. The Market average by the way from Jan 2001-December 2007 was well above 18% for REITS.

Graust-
I said that I own all of them... and I said, "if you are trading, ..."

uh-
Thanks... you and DI and the rest of the T/A crowd have influenced my thinking.  I don't do what you do, but I am paying attention and trying to learn.

I think that the worst investment trait you can have is vanity or over-confidence... the market has this wicked tendency to punish those that think they know everything.  It also has a tendency to change making what was successful fail in the future.  Never assume that you are right and everyone that does something else must be wrong... thinking like that will surely hold you back.

The wise man knows his or her limitations... it would truly be stupid to enter your street car in the Ind 500.  You have to crawl before you walk, etc etc.

erryl

no question public reits have greater potential for gains or losses.  but comparing untraded reits with traded reits is like comparing the returns of an income fund to a stock fund.

my untraded reit is right at home in my bond bucket, like a bond on steroids it spins off 8-1/2% a year in income and is rock steady day to day with no price swings.  the fact that i may make money in 7 years when its sold is a bonus.  the depreciation allowence is nice too.

on the other hand my ICF traded reit is as volatile as can be , it sits in my stock bucket and even surpasses my stock funds in volatility.  i have had it move 6% or more in one day as it trades on greed fear and perception.   it trades above and below what it is probley worth and most times has no bearing on its real value.... it may never actually trade at what its exactly worth.      its one wild ride            the untraded reit adds a stability that cant be matched on those 100 point swing days. 

theres a place for both in a good diversified portfolio.  where a conventional corporate bond may drop if inflation kicks up the untraded reit  will probly have the properties increase in value. 

as far as the price of admission to untraded reits, if those are the new fee structures yes they are high...   i would have to seriously have that structure analyzed before i would ever buy in.   our fees were pretty good in the earlier apples reits and i would do them over again in a heartbeat if they stayed the same structure.

my

I'd known about Fidelity Convertible Securities (FCVSX) for years, but recently I took a closer look. I like funds that give you smooth rides, and the annualized 10-year total return for FCVSX is 10.27%, just under T. Rowe Price Capital Appreciation (PRWCX) at 10.30%, according to M*. A few weeks ago, I started building a position in FCVSX. I think John Calamos once said that convertibles deliver about two-thirds of the upside of common stocks with only one-third of the downside. FCVSX manager Thomas Soviero is one of Fidelity's best, in my view, and there's more to his portfolio than convertibles.

Market has been moving up so fast that while I make up my mind - everything looks over-priced now.

I will be better off selling US stock funds it seems and buying foreign REIT because their currencies have recently fallen.