SBY and OAK...Opportunities for long term investors.

Rarely do opportunities come along like this one and with solid management as well.  SBY...Silver Bay Realty Trust  just started trading less than two weeks ago.  The IPO was at $18.50 and dropped a bit before firming up and now trading just above that price.  We really like this REIT and expect it to be a long term performer in basically an entirely new industry.  

Home foreclosures are continuing at a rapid pace and these homes once they go through the extensive foreclosure process come out the other end as excess housing inventory to be sold off by  banks or the US government.  The disposal prices are much much less than the former selling price and usually much less than what their value will be some years down the road.  Patience here is the key. 

SBY plans on buying up as many of these homes as they can and will fix them up if needed and rent them out.  The idea is to produce rental income that is payable to the shareholders and as the housing market improves sell them off for nice tidy capital gains. We personally think they can make this happen, but again one must wait until housing prices improve. Basically buying SBY you become a partner in renting single family housing with the opportunity to sell homes when the price is right. 

Remember much of home buying is location and the real estate the home sits on, not necessarily the actual home itself.  Here is a key to this stock doing well and that is using their funds to buy homes in future offer desirable selling of real estate that have rental opportunities now.  Management looks to have the experience and skills to do just that. 

There is risk if housing does not improve.   The company will initially own about 3000 homes which is being spun off from Two Harbors Investment.  There is also the worry of renting out all their homes, which currently are not fully rented.  The original value average of $121k is low as well. However on the plus side are annual rents giving a 10% gross return right now. There is some big money moving into these shares and we too believe some part of your portfolio needs to be here. 

We will wait until the stock has some time to trade and the price settles into a pattern to step in and buy shares or if options are offered take a position there. 

OAK...Oaktree Capital Group has been on our radar for some time since starting trading in Spring of 2012.  Oaktree specializes in  contrarian investing.  These opportunities range from distressed debt to distressed real estate worldwide.  We liked the company early on, but wanted to wait and see if they could execute in this economic environment.  They have done so and recently the stock price has responded with a move above $45.  They also have plenty of size at $81 billion in assets. 

Yes, we would love to buy this stock cheaper and will be patient and see if there is a move down with the uncertainty in Washington DC.  However one could buy OAK as a long term holding and do well five years out.  

Both SBY and OAK are long term buy and holds where investors will do well.  OAK pays a nice 4.8% dividend and we expect once SBY gets going they will pay a similar dividend.  We also expect nice capital gains from both here as well.  

OAK is a partnership and will spin off a K-1 at tax time. Consult your tax advisor before purchase and if possible it would do well inside a IRA.