I’ve noticed that a great many of the world’s richest people created their wealth not through investing in stocks but through real estate.
Real estate experts will tell you to buy property in your neighborhood, which is good advice, but the truth is that most of us do not want to deal with all the hassles of managing property.
There is an easier way of to get more property in your portfolio and it is through real estate investment trusts better known as REITs.
Let me highlight the advantages of REITs that give you a convenient way to gain property exposure in the U.S. and across the globe.
REITs trade like a stock and allow investors the advantage of participating in large-scale commercial real estate projects. REITs must pass 90% of their taxable income through to shareholders. In exchange, they pay no corporate income tax.
There are a wide variety of REITs on the markets ranging from apartments to shopping centers to office complexes to hospitals and a variety of other commercial projects.
REIT Advantages
Here is a snapshot on why you should take a close look at REITs.
Inflation Hedge – Real estate is widely considered to be an effective inflation hedge with values rising along with higher inflation.
Strong Income/Dividend Yields – Many REITs offer solid dividend yields, because tax laws require that companies distribute around 90% of their income.
Conservative Management/Liquidity – Since REITs must typically distribute most if their income to investors, management has less chance to misuse capital. The trading liquidity of REITs has also increased significantly within the last two decades.
Diversification/Higher Potential Returns with Lower Risk – REITs are a great way to diversify an existing stock portfolio and there are numerous studies by Wilshire that show it can increase returns and lessen volatility.
Many REITs trade on U.S. exchanges but if you prefer a basket of them, I suggest you go with an ETF. And while you’re at it, why consider diversifying into overseas international markets that often trade at higher yields and lower prices.
For U.S. property markets, a good bet is the low cost Vanguard Real Estate ETF (VNQ) that currently has 129 REITs in its basket. The top ten holdings represent 39% of its assets with retail REITs making up about half of its value and residential and office REITs making up about 30%.
My favorite on the international front is the WisdomTree Global ex-US Real Estate ETF (DRW).
DRW is a basket of international real estate companies weighted by dividends. Its top country weightings are from Hong Kong, Australia and Canada accounting for 63% of exposure. Another attraction is its 4.7% current yield.
I will leave you with one more piece of advice. Remember that the key to very successful real estate investing is to buy markets that are out of favor.
While Singapore’s high quality REIT market was up sharply early last year, it has since then pulled back sharply and is still struggling. This will soon present Value Bounce readers with opportunities as some leading Singapore REITs conveniently trade on U.S. exchanges.
Opportunity awaits,
Carl Delfeld.
Note from Midas Legacy Editor: We’re honored to have Carl Delfeld on our expert panel. Carl is founder of several financial organizations around the world, and he has advised the US senate and the US Treasury among many other large names. He is also the author of three investment books. Carl’s stock recommendation service, The Value Bounce, is the result of all his experience and research as he cherry-picks trades that allow you to have your cake and east it.
