Colony American Homes, a property investment and management company, has postponed its initial offering due to rising interest and overall poor market conditions.  Two other real estate investment trusts in the same sector as Colony American Homes, American Residential Properties (NYSE: ARPI) and Silver Bay Realty Trust Inc (NYSE: SBY) have performing poorly since going public.

Owning portions of more than 9000 homes in nine states, Colony American Homes bought the houses, fixed up the units, found tenants, and now manages the properties.  Silver Bay became the first publicly traded real estate investment trust with single-family homes when it went public last December.  American Residential Properties went public in May.  As the chart below shows, each has performed poorly since becoming publicly traded. 

Due to rising interest rates, stocks in sectors related to the real estate industry have plunged in recent market action.  Overall, stock markets around the world have been battered by Federal Reserve Chairman Ben Bernanke's remarks last week that Quantitative Easing III, a program of acquiring securities to keep interest rates low, could be ending soon its present form.

"In postponing its initial public offering, Colony American Homes has focused attention on how much better off individuals are as passive investors in real estate for the long term.  Real estate investment trusts are wonderful creations, but the publicly traded ones are too vulnerable to overall market conditions," counseled Jerry Cohen, Founder and President of EquityBuild, a real estate investment firm.  Cohen continued that, "As a very timely example, when stocks and bonds plunged in value during The Great Recession, the level of rental income in the United States actually rose.

Shaun Cohen, President of EquityBuild Finance, the funding unit of EquityBuild, advised that, "Investors looking to profit in a rising interest environment and still have exposure to real estate should consider private mortgage notes.  As interest rates rise, so can the yields on private mortgage notes.  For investment income, that beats the dividend income from a real estate investment trust."

Private mortgage notes are loans to buy real estate to a buyer from an individual or entity.  Often times, the yields for private mortgage notes can be in the double digits.  As the terms in private mortgage notes are completely flexible, there can be provisions to increase the rate charged to the buyer should interest hikes take place.

As a principal in more than 1000 transactions since 1984, Jerry Cohen, who was just honored with the prestigious "Moving America Forward" award for his serve to the community, also advised that, "There is a great deal of satisfaction in real estate investing in revitalizing neighborhoods and helping others.  Yes, that can take place with real estate investment trusts, but there is nothing like watching a property evolve from  being neglected and then restored into a beautiful home for a family.  It also provides rental income to the real estate investor.  That is the type of real estate investing in turnkey properties that allows one to both do good and do well!"

In terms of not doing well, Silver Bay Real Estate Trust is down almost 10% for the last month of market action.  Over the same period, American is by nearly 13%.  For EquityBuild Finance, private mortgage notes  average around a 12% return.  Turnkey properties return about 17% for the investors in EquityBuild.