Recent Buy – NRZ

What’s up everybody? I’ve been busy running around trying to fix a window. My tenant broke it on purpose because she was mad that the neighboring building is a night club that play music outdoor at 1AM. *Sigh* The tree want to stay still but the wind keep blowing. That’s how I feel. I just want a good rest.

The drama is the house is a victorian house. The window is 36 x 72. They don’t make these window anymore. I can’t find them at Lowes or at Homedepot. I ended up taking it to a glass place. Most of them want to build it and it would take 2-6 weeks. Good grief! However, I found a place that would build it on the same day if I bring the sash in before 10am. I didn’t make it by 10am, so tomorrow it is. 

That probably triggered me to buy mREITs, turning a “sigh” into a “buy”. NRZ, it is. Dividend income remain the sweetest income on my list of passive income, as I don’t have to deal with *mad tenant who breaks window, or spending several hours online to look for a solution, because these tenants don’t have any idea how much work it is involved and the costs to replace a window. I put in the lease that if a glass window got broken, it’s a $500 charge. But I’ll end up charging for the cost of it. $195.

About NRZ:

• New Residential Investment Corp. is a real estate investment trust.
• It focuses on investing in, and actively managing, investments related to residential real estate.
• The Company primarily target investments in excess mortgage servicing rights, residential mortgage backed securities, residential mortgage loans and other related investments.
• New Residential Investment Corp. is based in New York.

 

I bought 10 share at $16.xx. That will add $19.2 to my annual dividend.

What I like about NRZ:

1. NRZ is yielding at 11.33% is pretty good given that I don’t have to manage the property and I still get 11.33%.
2. New Residential Investment clocked in $0.54/share in core earnings in the 1st quarter which compares favorably to a dividend rate of $0.48/share. It overearned its payout by $0.06/share, leaving headroom for another dividend raise, or even a special dividend.
   • Remember REITs is required to payout at lease 90% of their income. New Residential Investment’s core earnings payout ratio in the 1st quarter was 89 percent, which is another way of showing that the company has room to boost its dividend. The average core earnings payout ratio in the last seven quarters was 88 percent.

3. I also like how NRZ makes money

   • First, it buys excess mortgage servicing rights. Typically, REITs buy MSRs and get the right to collect monthly mortgage payments. But by buying an excess MSR, New Residential amasses cash flows monthly from the MSR without assuming any servicing duties.
   • The second type of investment is a servicer advance, which is a reimbursable cash payment made by a servicer upon certain conditions. Generally, servicer advances are repaid from amounts received with respect to the related mortgage loan. Since these instruments are first in line to be repaid, they have high credit quality.
   • The third investment avenue is non-agency residential mortgage-backed securities, or RMBS, and associated call rights. These instruments are extremely valuable when the U.S. economy and housing market strengthen, as they are doing now.
   • New Residential is also known to use conservative capital structures in a bid to generate returns across various interest rate environments. This is important because interest rates may change over the years, but a conservative mindset can protect you from the downsides. As they say on Wall Street, whoever loses the least wins the game.

What do you think about the recent punishment on the REITs? Are you buying any REITs now or wait until the price to decrease some more?

 

Full disclosure: I’m long NRZ, and REITs