I love real estate. It’s where I got my start and is truly one of the best wealth-builders you’ll ever find. I’ll show you the different types of real estate investment trusts, those REITs that trade just like stocks and give every investor the chance to be in this property investment. I’ll reveal why you need to be careful with mortgage REITs that pay dividends of 10% and higher and why I’m not investing in an entire property type in REITs.
We’ll look at how REIT returns have compared to other stocks and what real estate looks like. Then I’m going to share my five favorite REIT stocks for your portfolio for that diversification and returns.
It’s all part of our 11-video series seeking out the best stocks to buy in each sector of the economy. Build a rockstar portfolio with the best of breed players in each sector for diversification and double-digit returns. Check out the previous videos in the series!
I love talking about real estate investment trusts, REITs, because it is such a great way for main street investors to get some real estate in their portfolio. A REIT is a special type of company that owns real estate and gets a tax break for passing the majority of profits on to investors.
While equity REITs, so that’s a real estate investment trust that invests directly in real estate and owns property, while those are about 80% of the market, there’s also something called a mortgage REIT or mREIT. These pay huge dividends, sometimes around 10% and higher, but are also extremely risky because of the way they borrow and leverage their money. I'll reveal my favorite mortgage REIT in the video but be very careful when you're investing in these because they can drop fast and wipe out your dividend return.
If you want to talk returns, even through the worst real estate crash in U.S. history, REITs have way outperformed stocks. Here I took data from the National Association of REITs equity REIT index, the blue line, versus the S&P 500 index in red. Over 30 years to 2017, the total return on REITs is 10% a year versus a return just over 7% annualized for stocks.
There is one property type I’m avoiding though and those of you in the nation have heard me talk about this. Retail property; so we’re talking shopping malls, department stores and other types has been a value trap for years. The shopping mall REITs are trading well below the price of other REITs and showing much higher dividend yields and that’s dangerous.
2:20 What is a REIT? 3:10 Why You Have to Be Careful about REIT Dividends 4:15 How the Yield Curve affects REITs 4:40 Real Estate vs Stocks 6:40 Top REIT Funds for 2021 8:00 How to Pick Real Estate Investment Trusts to Buy 10:25 Best REIT Stocks for 2021
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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps. #reits #reit #realestate
