I’m frequently approached with the question, “Nick, what’s your favorite REIT?” Real estate investment trusts (REITs) have captivated the interest of investors seeking exposure to real estate without the complications of property management.
Over the years, I’ve steered clear of investment properties due to the sheer hassle of management and maintenance. My aversion to plungers and paint cans, coupled with the horror stories of unruly tenants, led me to the more accessible world of REITs. These investments not only offer liquidity but also better diversification, handled by seasoned real estate professionals.
Choosing the finest REIT is no cakewalk, with only a handful standing out. Among these contenders, Realty Income (NYSE:O) and Rexford Industrial Realty (REXR) shine impressively, albeit in different lights.
Pondering the pivotal question — do I desire yield or growth? — leads to a tug-of-war between Realty Income’s 5.17% yield and Rexford’s 2.69% yield. While Rexford entices growth seekers, Realty Income lures those seeking substantial income streams. Gratefully, I indulge in both, envisioning a lasting commitment to these companies.
Presently, I delve into the star of the show: Realty Income – my preeminent REIT holding.
Let me elucidate why this standout company is my preferred high-yield REIT.
Unwavering Success: The K.I.S.S. Approach to REITs
Unlike my other market investments, the real estate investment model is resistant to disruption. While technology like iBuying simplifies transactions, the fundamental framework of generating cash flow from rented properties remains unaltered.
Why, you ask? Because real estate profits boil down to a straightforward process: secure desirable properties, avoid overpayment, secure reliable tenants, and reap the rewards. This time-tested system relies on access to affordable capital and prudent capital deployment.
It is implausible that an innovation will upset the capitalization rate equation. While the allure of specific locations may evolve, land scarcity remains constant, and natural habitat shifts occur gradually over time, well within my investment horizon.
The present risks, such as rising sea levels, are foreseeable and hence, manageable. With this in mind, a ‘Keep it simple, Stupid’ (K.I.S.S.) approach resonates with my REIT investments. In real estate, size, scale, and strategy take precedence, obviating any need for fancy maneuvers. Rather, I bank on proven winners and astute management, backed by robust portfolios, cash flows, and access to low-cost capital.
Furthermore, industry consolidation remains an enduring trend, with M&A presenting the clearest path to acquiring sizable property portfolios. Given the sector’s fragmented nature, antitrust concerns are minimal. Globally, REITs own approximately $4.5 trillion of real estate, a mere fraction of the $400 trillion global real estate market, hinting at abundant growth prospects.
All things considered, my optimism for Realty Income stems from the industry’s foreseeable trend of the affluent getting wealthier.
