Chris’ note: This week at the Cut, I’ve been passing along foundational insights from the team about how to build and hold onto wealth. And we’ll continue today with more from friend of Legacy Research Brad Thomas.
Brad was a successful real estate developer. Then he lost it all in the 2008 crash. But he made his millions back with the help of a special kind of stock market real estate play called a REIT.
These allow you to build your own real estate empire… without directly owning any real estate. And as Brad reveals below, they give everyday investors access to big-money commercial real estate portfolios… and the growing income streams they pay out.
As the dice tumbled out of my hands, I prayed for anything but a seven…
I’d rather go to jail than land on Marvin Gardens, where my dad had built a hotel.
That would set me back $1,200.
And I was out of cash…
Not that it would change my love of Monopoly. It was my favorite game as a kid. I was good at it, too. Even if my dad regularly got the upper hand.
It fueled my dream of building my own real estate empire.
I learned the key to winning was scale. Not just a hotel here or there… but dominating the board.
With that lesson in mind, I later became a successful real estate developer. Whether it was site acquisition, leasing, construction, or management… I was doing it all.
But the 2008 real estate crisis – plus trusting the wrong people – sent me back to square one.
So for the past 12 years, I’ve focused on building another kind of empire – this time made up of lower-risk income plays in publicly traded stocks.
My Favorite Income Play
My favorite income play is something called a real estate investment trust (“REIT”).
A REIT makes it so anyone can build a real estate empire… all through the stock market.
REITs trade on public exchanges like regular stocks. But they own income-producing properties.
They buy real estate… collect rent… then pay it out to shareholders in the form of dividends. By law, REITs must pay out at least 90% of their taxable income to shareholders. Most of them pay 100%.
As a result, they pay the kind of reliable income streams that make them perfect for my SWAN (sleep well at night) investing approach.
My mission is to find the most dependable ways to make – and hold on to – wealth. No matter what kind of market we’re in.
So today, I’ll show you why you should consider adding REITs to your portfolio… and why they’re my favorite way to deploy the lessons I learned from Monopoly all those years ago.
REIT Advantage No. 1 – They give everyday investors access to big-money real estate
At least 75% of a REIT’s assets must be real estate. These assets can include malls, shopping centers, standalone properties, office buildings, warehouses, data centers, timberland, hotels, resorts… even cell towers.
This makes it easy for regular folks to become landlords.
That’s what REITs were designed to do. They give everyday investors access to big-money real estate offers.
Better still, you can get your slice of the real estate pie without the hassles of being a direct landlord.
REIT Advantage No. 2 – They don’t pay corporate income tax
They’re “pass through” businesses. So they’re not subject to corporate income tax.
This is a big deal. Those taxes eat up 21% of traditional companies’ profits.
Uncle Sam never gives anything away for free. So REITs must pay at least 90% of their taxable income to shareholders… which is great for us.
That means they can pay much larger dividends than your average income-producing stock.
REIT Advantage No. 3 – They’re more predictable than regular stocks
With a regular business, Wall Street analysts have to guess what they’ll earn years down the road. That’s how they figure out what a stock is worth.
The uncertainty around these guesses creates wild swings in companies’ stock prices.
But REITs typically enter long-term lease contracts. That makes it easier for analysts to accurately forecast their earnings.
When you have renters committed to paying you, year in and year out, it makes for steady business. And that steady business tends to make their stocks less volatile…
Which helps shareholders sleep well at night.
REIT Advantage No. 4 – They help with diversification
REITs give you exposure to real estate without having to buy it directly.
They also make it easy to diversify your portfolio within the real estate sector.
In addition to single-family homes, stores, and offices, REITs allow you to invest in farmland, apartments, casinos, hospitals… even research labs.
Plus, a single REIT may own dozens, hundreds, or even thousands of properties. So, if there’s trouble with a single property, it won’t have a huge impact on your portfolio.
REIT Advantage No. 5 – They protect you from inflation
This is a major one considering inflation in the U.S. is running at an annual pace of 5%.
When inflation rises, real estate prices and rents go up with it. In fact, leases often include terms that increase rent based on inflation.
A study by financial information and analytics company S&P Global backs this up.
Even when inflation spiked to more than 10% in the late 1970s… and interest rates increased by 8.5%… it showed REITs performed nearly three times better than other stocks.
But as I mentioned, REITs span a range of different property types.
So where should you focus as you begin your REIT investing journey?
How to Play Rising Mortgage Rates
Between rising mortgage rates and a national housing shortage… more and more would-be homeowners in the U.S. are opting to rent apartments instead.
Interest rates are at about a 15-year high. The average 30-year fixed rate mortgage is at 6.7%. That’s up from 5.3% just a year ago.
That may not seem like much… But all that interest adds up. Monthly payments are up about 16% from 2022.
That’s why, right now, apartment REITs are at the top of my list.
Higher rates are forcing many Americans to put their homeowning dreams on hold. They’ll keep renting in the meantime.
One high-quality apartment REIT you could start with is Essex Property Trust (ESS).
Essex invests in high-end rental properties in three of America’s most expensive, supply-constrained markets: Northern California, Southern California, and Seattle.
That means we don’t have to worry about rent prices falling, even during a recession.
It currently yields 4.3%. That’s more than twice the yield on the S&P 500… and 55% higher than Essex’s 10-year average yield of 2.8%.
That means it’s a great time to buy shares of ESS right now.
I also share the name of another of my favorite apartment REITs in a presentation I put together.
It’s about a major market shift I’ve spotted. It could send some stocks plummeting even further than they did in 2022. I also show you a SWAN strategy I’ve developed to help protect and grow your wealth in today’s volatile markets.
REITs’ share prices may go through rocky times. But they throw off reliable streams of income… and strong returns over the long term… especially in times of high inflation and when markets are especially unpredictable.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily
P.S. Don’t forget to go here to catch my presentation. I lay out my strategy that could fast-track your retirement and help protect your wealth in today’s erratic markets.
All you need is a small portfolio of unique stocks. I even share my No. 1 stock to ride out today’s choppy market… and anything else the economy can throw at us.
Go here to access it.