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Mid-America Apartment Communities Inc. Message Board

  • zebraspit zebraspit Sep 19, 2002 1:36 PM Flag


    You can buy MAA on margin and pick up 4 points on the difference between the 9.5% yield and the 5.5% margin rate.

    Tempting to pile in big...

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    • Your math assumption is incorrect.

      The difference in the effective interest rates is much smaller than you think.

      The 9+ % dividend is only compounded quarterly, while your margin loan accrues interest DAILY.

      The net $ difference is likely to be negligable, if not a wash or a loss.


    • Be careful. This strategy is similar to that of borrowing short and lending long -- a formula that has driven many entities down the tubes. Leveraging REIT's at this time may not be a good idea if: 1) REIT values go down, and, 2) short term interest rates go up.

      Why could REIT's go down in value? First, many REIT's are at or near their peaks, even as vacancies are high or increasing (see the link below). Second, IF (a big IF, perhaps) an economic recovery takes place, other types of stocks will become more attractive to many investors, including mutual funds, who will dump REIT holdings to chase the other stuff. Third, rising interest rates usually send REIT prices down, even though (unlike the underlying maturity value of bonds) real estate tends to appreciate over the longer term. (cont'd . . .

      • 1 Reply to Vaalie60
      • As to the chances of rising interest rates by the middle of next year -- well, I think it is at least a 50% probability that it will happen. We continue to run record trade deficits putting pressure on the $, the November elections that are causing the Fed to hold rates steady will be over, and GWB is putting us on a war footing, taking us back to the days of large federal deficits.

        Take your chances and leverage if you will, but I think there is too much risk there.

        For what its worth, I recently did a screen of REIT's as my wife is looking for income on some cash she has on hand. I looked for REIT's whose last quarter showed per share growth in [Net Income + Depreciation], low price compared to the same measure, and estimated total return exceeding 10%. A dozen REIT's came through, including KRT, CLP, MAA, BDN and GLB. With an emphasis on low risk for her portfolio I selcted the above five, except I dropped MAA and put in EGP, as she already holds UDR and AEC in the apartment sector.

        Good investing.

    • you had an account at Brown Co.. Margin cost is 3.5% for amounts 100K to 500K, and only 2.5% for margin amounts larger than $1 mil. This is below broker call rate!

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