Rachel’s note: Today, we bring you insights from income investing expert, advisor, and Casey Research colleague Brad Thomas. He is the editor of Intelligent Income Daily at Wide Moat Research.
Brad has over three decades of stock market and real estate experience under his belt.
A real estate developer by trade, Brad ruled a booming empire… until the 2008 crash.
Then he lost almost everything.
The following few years were rough, but he used that time to build himself back “from the ground up,” as he likes to say.
This time, he made sure to start with a brand-new mindset that focuses on the long term, cuts through the noise, and invests in reliable, income-based strategies.
And since then, he’s brought those valuable lessons to individual investors. For example, he became the most widely read analyst on Seeking Alpha, with more than 100,000 followers.
So today, we’re passing over the reins to Brad. He’ll explain why real estate investment trusts (REITs) are one of his favorite investments, and how they can help you earn dividends and beat inflation…
By Brad Thomas, editor, Intelligent Income Daily
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. It would set me back $1,200, and I was out of cash.
In which case, game over.
Not that it would change my love for Monopoly, my favorite game as a kid. I was good at it, too. And it helped fuel my dream of building my very own real estate empire.
Sure, there was some luck involved. But there was also a lot of strategy. 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 grew up to become a real estate developer. From site acquisition, to leasing, to construction, to management, I was involved in it all.
For the past 12 years, though, I’ve focused on lower-risk income plays instead.
And one of my favorites is real estate investment trusts (REITs).
They produce steady income streams that are perfect for any type of market environment, especially the volatile one we’re in right now.
Today, I want to tell you why REITs stand out from the stock market crowd… and what makes them my favorite way to deploy the lessons I learned from Monopoly all those years ago.
REITs Are Designed to Be the Ultimate Real Estate Investment
REITs don’t form monopolies, of course. That would be illegal. But they do know a lot about strategy.
Even back in my developer days, I was familiar with REITs. I both bought from and sold to them. I just didn’t realize at the time the real estate they offered through scale and low-cost capital could be game-changing for average investors.
Reason No. 1:
At least 75% of the assets they own or manage must be real estate. This can include malls, shopping centers, stand-alone properties, office buildings, warehouses, data centers, timberland, hotels, or resorts… even cell towers.
This makes it easy for small investors to become landowners.
And that’s what REITs were designed to do. They give the proverbial little guy access to the big money real estate offers.
Better yet, they do it through convenient, liquid stocks – and without the hassles of being a direct landlord. So regular investors can purchase them to get real estate exposure with a relatively smaller starting amount.
Reason No. 2:
They’re pass-through businesses, which means they’re not subject to corporate income tax. This is a big deal, since those financial obligations eat up 21% of traditional companies’ profits.
Uncle Sam never gives anything away for free, of course. So REITs must pay at least 90% of their taxable income to shareholders… which is great for us.
That means REITs can pay much larger dividends than your average income-producing asset.
Reason No. 3:
REITs are more predictable than average stocks.
Analysts often have to guess how a traditional company will perform, sometimes creating wild price swings as a result. But REIT earnings are usually easily forecasted because of their long-term lease contracts.
When you have the same 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.
Reason No. 4:
Not only do REITs provide portfolio diversification, they also provide variety within their own sector.
Along with houses, stores, and offices… REITs own everything from farmland to apartments, casinos, hospitals, and even research labs. So investors have their pick of categories.
Plus, a REIT might own dozens, hundreds, or thousands of properties. This reduces its individual risk from things like natural disasters or tenant defaults.
Reason No. 5:
This is a big one, considering the economy we’re in… REITs protect against inflation.
When prices rise, real estate values and rents do, too. In fact, many leases often include terms that increase rent based on inflation numbers.
An S&P Global study showed that… even when inflation spiked over 10% in the late 1970s and interest rates increased by 8.5%… REITs performed nearly 3x better than other stocks.
REITs Are Worth Considering for Your Portfolio
Income, diversification, inflation protection, exposure, and predictability. REITs really do have it all.
That’s why I love them as a safe, income-producing investment. And it’s why I encourage you to evaluate them, too.
Bottom line: With REITs, you don’t have to buy a whole building or put down thousands of dollars on a mortgage. Just a small amount is enough to make you an instant owner in a rent-charging, dividend-paying company.
I’d say that’s the big kid’s way to play Monopoly… and a version where winning can be so much easier than trying to beat my dad.
Happy SWAN (sleep well at night) investing,
Editor, Intelligent Income Daily