When our cat Miss Fluffy started exhibiting signs of social anxiety a few years ago, we had no idea that her emotional distress would lead to us forming and developing the premier pet therapy clinic in Palm Springs. But here we are, making a fortune on anti-stress merchandise and housepet counseling services, and now we’re considering expanding Chillpet, Inc. into a new market. But which new market to choose?
Well, one thing we can look at is an area’s real estate market tier.
“Real estate market tiers” are categories of real estate markets, and there are three to choose from: Tier I, Tier II, and Tier III. Not very exciting names, to be sure, but they do tell us a little something about the market they represent.
Tier I markets are very well-developed and tend to have high housing prices and an appealing infrastructure (i.e., there are good schools, there’s a good freeway system, the WiFi signal is strong, etc.). Think New York and Los Angeles. Those are Tier I markets, as are places like Phoenix, Dallas, and Denver. Tier II markets are maybe a little less developed and established, but they’re not exactly third-world countries. Think: Anaheim, Portland, Madison, or Scottsdale. They’re decent-sized cities with real growth potential; they’re just not New York or LA. Tier III markets are smaller and less developed yet, but again, it’s not like these places don’t have roads or running water. They do, however, tend to have lower housing costs, and out of our three tiers, they’re the most likely to be impacted by economic changes, like recessions.
It would probably be cheapest for us to set up our next Chillpet clinic in a Tier III market, but it’s also the most risky. A Tier I market would be the most desirable, but it would also cost us a fortune to get set up, and there’s probably a fair amount of competition. But we’ll have to weigh the pros and cons, do some research, and consult with Miss Fluffy (she’s very zen these days) before we make our final expansion decision.
Related or Semi-related Video
Finance: What is REIT?8 Views
finance a la shmoop what is a REIT all right people let's start with the basics
the letters reet real estate investment trusts it's basically a mini mutual fund [REIT written on chalkboard]
for real estate investments think a chain of old age homes which might carry
a market value of a million bucks each but which throw off 80 grand a year in
net cash profits that is the entire chain of old-age homes throws off 80 [People with homes for heads appear]
grand a year in cash profits all right in melding together a whole bunch of old
age homes at least in theory the volatility of anyone home dying that's [Heart rate monitor appears]
the risk of it and then affecting the creditworthiness of the entire portfolio
of real estate holdings is lowered with scale a REIT can then borrow money more
liquidly or easily let the transaction cost $4 or a lot less and it can [Coins falling]
leverage its legal obligations and its meds buying process with scale because
it's a lot cheaper per pill to buy four million aspirin a month in just four
hundred along with volume deals on diapers and dentures that you know [Piles of diapers and dentures appear]
across a much bigger swath of buyers well REITs have been around for a while
ironically they came into existence as an extension of the cigar excise tax in [Man smoking]
1960 and extend as far in ownership as warehouses commercial office buildings
shopping malls where piercings happen in strange places and apartment complexes
of all shapes and sizes well to qualify as a read a company must invest at least [An apartment complex]
75% of its assets in real estate re there that they re NRB holding cash or
US Treasury bonds with the intent of investing in real estate it has to
receive at least 75% of its gross profits from real estate rentals it has
to pay out at least 90% of its taxable profits as dividends to its shareholders
annually and basically the government is saying well if you're gonna act like a [Man talking in congress]
REIT you actually have to be one you can't have 75 percent of your gross
profits in like oil dividends or dividends from tech companies if those
even exist well a REIT has to have at least a hundred shareholders and have
its ownership diversified such that at least half of its ownership shares are
held by five or more individuals like it has to actually look like a fund it
can't just be a shell corporation put up by one guy to uh you know take advantage [Man stood outside of Shell co.]
of the system well REITs are publicly available for
Joe Schmo to invest in they tend to pay a very high dividend and they grow asset
values at a modest premium to inflation like a few percent a year that is they
don't grow much but they pay a lot of cash dividend out and that's nice for [Cash falling]
old people so most of their payback to investors is
quote bond-like unquote and that's a REIT now keep an eye out for those bulk
diaper deals for grandpa and good luck dealing with the bulky diapers [Diaper throw into trash and woman appears]
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