Your complete guide to investing in REITs

Investment | 27 Dec, 2019 |

Equity REITS, Mortgage REITS (mREITS), Public non-listed REITs (PNLRs), and Private REITs are four of the major types of REITs available for investors. Equity REITs make up the majority of the stock market and are also the most easily accessible for the average investor. The major advantage of Equity REITs is that they can produce consistent dividends of up to 5% or more annually. And, several even pay their dividends monthly instead of quarterly. Additionally, many Equity REITS stocks also appreciate consistently as well. So, you should consider adding these stocks to your portfolio.

What exactly are Real Estate Investment Trusts?

Instead of purchasing and renting a house, motel or other real estate, you could purchase REIT stocks instead and share in the dividends of their income-producing properties. Since the real estate market is so large and varied, many REITS invest in specific property sectors. For instance, some REITS buy multifamily housing developments while others invest in commercial office buildings, malls, industrial parks, hospitals, pipelines, cell towers, and so on. So, to control costs and reduce expenses many REITs purchase, manage, and finance several multi-million-dollar investment properties simultaneously.

Why do REITS make such good investments?

Income produced by REITS from renting, leasing, or selling property must be returned to their investors. In fact, 90 percent of the REITs’ income goes back to their investors. Many REITs yields routinely outperform the stock and bond markets as their income properties appreciate in value. Several REITS even continually increase their dividends over time.

Things to know before investing in a REIT

Unlike normal stocks that follow the average business four-year cycle of ups and downs, the REIT follows the real estate cycle which is often steady and lasts for up to 18 years. As a result, REITs can provide a hedge from business downturns.

Although today’s inflation is almost non-existent, when inflation does go up, rents go up and REIT increase in income as well. So, REITs are an excellent hedge against inflation. However, REITs are sensitive to real estate downturns which can cause their yields to fall during such times. Yet, even during real estate depressions, particular property sectors are protected such as casino properties while other sectors may temporarily be depressed such as the commercial office sector.

Try to avoid blindly chasing after a high yielding REITs before examining their growing cash flows and prices. You can find an attractive REIT by looking at its stock price minus its net asset value. The net asset value is also called the per-share value of each of their holdings. For short, the per-share value is called the P-NAV.

If the P-NAV is negative, the REIT’s properties are worth more outside of the REIT itself making the REIT overall undervalued by the market. Additional considerations to consider for REIT evaluations are supply and demand of occupancy units, geographic location, and demographics.

What are the best REITs to buy now for 2020?

According to Investopedia.com, Real Estate Investment Trusts (REITs) perform with an average annual return of 11.8 percent easily outperforming the S&P benchmark of 8.5% over a 20 year period. So, you should add REITs to your portfolio and these are the best reits to buy now for 2020.

The SITE Center, an open-air shopping center REIT (SITC $13.60) offers an annual yield of 5.6% with a 5 year annual dividend growth of 5.2%. SITC has a 12 month total return of 32.1% even though the stock has loss value for 5 years.

The Iron Mountain (IRM) REIT is a global storage business for everything ranging from artwork to legal documents to digitization to cloud storage. Growth continues in 50 plus countries with over 230,000 customers including 95% of fortune 1000 companies. IRM is currently yielding 7.88% with a 7% growth rate.

One of the newer REITs is Plymouth Industrial (PLYM) and since its IPO in June 2017 holdings consist of 57 industrial buildings across 10 states. PLYM is forecast to grow by 17% in 2020, so that its dividend of $1.50 stands to increase. The dividend yield of 8.07% is at a current stock price of $18.60 (Dec 23, 2019).

High yield equity REITs are a must for the yield hungry investor. Experts recommend containing from 5% to 15% of REITS in your portfolio.

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