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Wednesday, September 24, 2008
House Signs Off on Auto Loans, Lets Drilling Ban Expire
Matt Egan
FOXBusiness
A hurdle in Detroit's efforts to obtain $25 billion in loans from the federal government was cleared on Wednesday when the U.S. House of Representatives passed a massive spending package that will also lift a ban on some offshore drilling.
Detroit’s Big Three car companies-- General Motors (GM), Ford (F) and Chrysler LLC -- have sought funding to produce more fuel-efficient vehicles. The billions in low-interest loans would also likely help the cash-strapped auto makers deal with one of their toughest periods in recent memories.
The auto giants have seen their sales plunge this year as gasoline prices briefly eclipsed $4 a gallon nationally, lowering the nation’s appetite for gas-guzzling SUVs and trucks. Low consumer sentiment has weighed on sales even as auto makers have offered incentives like low-interest financing.
The $700 billion temporary spending bill, which was needed to keep funding the government through March 2009, is expected to pass in the Senate before the fiscal year ends on Sept. 30.
After months of partisan battling about offshore drilling, the House voted in favor of allowing the 26-year moratorium to expire at the end of the month. President Bush threatened to veto the spending package rather than let it pass without lifting the offshore drilling ban.
While the ban will likely be lifted, no new drilling is expected just yet as Congress will likely revisit the hot topic after the election. Still, allowing the offshore drilling ban to be lifted reflects the changing sentiment in the country as crude-oil prices touched record highs earlier this summer.
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Not everyone has the financial ability to own and rent out multiple houses for extra income. And even fewer people want to deal with late night calls from tenants crying about their broken oil burner. Well, thanks to real estate investment trusts, or REITs, you don't have to deal with the stresses of being a landlord to make money off of the real estate market.
A REIT is any entity that pools money from a group of investors to buy different kinds of real estate or real-estate-related assets, such as buildings or mortgages on buildings. It uses the income from rent and loan interest to pay out a steady monthly dividend to its investors.
There are three types of REITs. The most common one is an equity REIT, which simply buys buildings and generates revenue from the rent it charges. Mortgage REITs loan out money to owners of real estate for mortgages or buy existing mortgages to collect interest, which is then paid out to the REIT's investors. Finally, there are hybrid REITs, which are a combination of mortgage and equity REITs.
REITs can be public or private. Public REITs are bought and sold just like stocks and are listed on exchanges, while private REITs can only be bought through direct-participation programs. With private REITs, the investors are actually part owners of the real estate rather than just shareholders of the REIT corporation. They can't sell shares and they typically have to keep their money tied up for eight to 12 years. However, there's the benefit of less volatility since the market can influence public REITs.
One potential drawback to REITs is how they are taxed. While qualifying equity dividends are normally subject to only a maximum of 15%, the dividends from REITs are taxed as regular income, which could be much higher -- depending on how much money you make.
