Chimera Investment Corporation (CIM)

[Dallas66]

Reits borrow money ( and sell shares) and leverage that money to borrow more money. They then loan it to investors...builders...institutions... even individuals who want to invest in real estate. This is a typical Mreit.

They typically charge interest and possibly admin fees to the borrower. They make their money by the spread between their "carry cost" and their income from interest, fees, and associated costs they charge.

The carry cost is their total cost to borrow money.

As their cost to borrow money goes up, ( FED raising rates) the spread typically decreases between short term wholesale borrowing and retail lending....smaller spread...smaller profit margin.

They also have an inherent amount of default risk from borrowers that has to be taken into consideration. The higher default rates, the less profit. Also, as rates go up, many will refi to lower rates, thus reducing the profit spread again.

You can make a lot of money with Reits...if you get in at the right prices. There can also be quite a risk value as well...some of the other Reits that have a much higher leverage ratio than CIM have lost a lot of share value.