Hi there. Now I don't know about you, but I was once a course junkie who had sat through many investment courses and had often hear about other instructors claiming that Reed's had delivered outstanding returns to them and their investors. Looking at the past results, it seems to be so for the past five years reads as a whole have clocked in an average annualized total return of 13.3%. And for the whole of 2016, the annualized return is about 12%. But the question here is this. Are those returns truly outstanding?
How would you determine whether one class of investment is better than the other? The answer is to compare with the broad market which is none other than the s&p index. And that is what I did. Looking at this chart You will observe that the US return index marginally lost out to the s&p index on every single timeframe, whether it's the one year average two year average or five year average returns. This implies that an investor would be better off placing his or her money in the s&p index than in reads, quite a depressing finding for any read instructor trying to market his or her course, wouldn't you say? Well, this is reality.
I needed to show you this truth so that your expectations are set right. But all is not lost. reads are still great investments. And if you are dedicated enough to master this class of investment, your returns will definitely outshine those of the SNPs. Moreover, reads are some of the few investments out there that are easier to understand and manage whilst delivering real estate cash back into your pocket. I have seen many young working adults and retirees benefit from REITs investments from taking multiple trips around the world to purchasing a new property all together.
Return investments, if managed well can enable you to do all these anymore. And speaking from personal experience, the rates in my portfolio have more than doubled their value since 2010. And I enjoy yearly dividends of 12 to 15% consistently. So if I can do this for myself, I am sure that you can do the same. To convince you further. Let's look at a hypothetical example.
Aaron has just started his career as an engineer. He has been working for the past three years and has saved up a decent sum of money. He then decides to put $10,000 of savings into his return portfolio that will give him a conservative yield of 9% every year. Aaron without fail puts in at $12,000 annually into this portfolio and whenever he receives cash dividends from his reads, he will reinvest all his dividends into his portfolio. Fast forward 10 years into the future, how much dividends will Aaron receive in a 10th year $5,000 $10,000 or $15,000? Okay, I won't stress you with any calculations.
The answer is Aaron would have received about $16,000 of dividends and $70,000 of extra savings after just 10 years of investing. His investment would balloon to about $190,000 Aaron is doing pretty okay. I would say, of course, if you put in more money at the start, it would propel you towards financial independence faster. But the challenge here is this to build that portfolio of reeds and manage it in such a way that it will give you a consistent total return of 9% or more for the next five to 10 years. And that is what I will be teaching you to do through the remaining lectures in this course, I hope you are inspired by the real possibilities of what real investing can do for you. And with that said, let's move on the next lecture.
In this lecture, you'll be introduced to what exactly a read is the important people behind the scenes and the other basic concepts, knowing all these will help strengthen your foundational knowledge on retail investment. So without further ado, let's start If you are new to Reed, Reed stands for real estate investment trust. They are basically a fund that owns a portfolio of properties that are rented out to tenants. The tenants in turn pay rental fees, which are then collected and subsequently distributed to investors like yourself. reads allow you to own various types of properties, which were previously inaccessible to the everyday investor. Next, let's talk about the sponsor, which is this neon purple circle over here, you will come to realize that many roots will have a sponsor related to each of them, just like how parents nurture their child.
A sponsor is an entity that basically provides essential support such as its vast experience contacts and credit backing to the betterment of the root. This was evident back in 2008 2009 during the Great Recession many reads for a while to tide through those difficult times with the help of their sponsor, who were supporting them source for needed capital. A sponsor may also be the largest shareholder of the read, since they were the one that injected their own properties into the initial portfolio of the next, the read manager the red circle over here. The read manager title refers to a team of business comm financial savvy people who are in charge of optimizing the reads capital structure and identifying assets that can be acquired or sold. They are also in charge of planning initiatives that would enhance the value of the properties. The other manager is called the property manager.
The cool turquoise circle over here. This team of people provides on the ground services such as collecting rental payments from tenants implementing marketing programs, ensuring that floors are swept clean and leaking pipes fixed and so on. For the sake of simplicity, I will lump both the retail and property manager together and call them simply as the manager. So later on in the course, whenever I use the term manager, think of both these parties and the important roles that they play. Next, we have the trustee, which is the deep blue circle. This group of people oversee the activities of the manager and make sure the manager complies with the trust deed and regulatory requirements as well as higher replacements if the shareholders so wishes to replace certain personnel within the managers team.
The trustee is also paid a fee to perform their function of providing oversight. Here is a simplified overview of the parties involved in a repeat. This will give you an eagle eyes perspective, whatever it is and the roles different parties play Great. Now let's turn our attention to the other basic concepts of reinvesting the first point. There are two main board classes of rates, equity rates and mortgage rates. Equity rates own a wide range of property types, including offices, shopping centers, and much more.
They derive most of the revenue from rental income mortgage rates, on the other hand, finances both residential and commercial properties, and this type of reads earns most of the revenue from interest earned on their investments in mortgages backed securities. Note that in this read course, we will only talk about the publicly traded equity reads. Second point reads in the US are legally required to pay out at least 90% of their income to unit holders annually. In addition At least 75% of the income must be earned from rental income and its assets must consist at least 75% of real estate. All these rules are to ensure that the rich do not deviate from their investment mandate. Note that different countries have their own rulings for reads, but the difference is minimal.
Most reads follow a similar ruling as the US The third point similarly to stocks reads can be easily bought and sold and are traded through your online stockbrokers. The fourth point, just to make things simple in this course, unit holders and shareholders are one in the same as with units and shares. The fifth point read investors will often come across this term called right of first refusal. And what this term is, is basically an agreement established between the reader And it's sponsored. When the sponsor wants to sell its property asset away, the reads will be offered the right to purchase the asset first, before it is offered to the market. What many retail investors do not know is that the sponsor has the obligation to ensure that the rental income of the properties is stable before injecting them into the reeds.
And the final point, the common ratios used for analyzing rates include whale occupancy rates, and AV gearing and dpu. I have a classified these ratios according to their use and summarize their functions. So do take some time to read and understand them. This table of ratios is included in the summary notes, just download them at your own convenience. One last thing throughout the remaining lectures if you happen to come upon a term or concept that is unfamiliar to you pause the video and head to investopedia.com to search for a proper explanation of the term used. Or simply leave me a message in the q&a section.
I will try to answer your queries as soon as I can. Thanks for your attention. Let us say goodbye for now.