For those of us with little interest in dealing with the headaches of being a landlord or simply lacking the funds to be one but still would like to earn cash flow from real estate, investing in Real Estate Investment Trusts (REITS) provides a solid option. The Real Estate sector has recently been added to the S&P 500 index. Up to now, Real Estate Investment Trusts (REITs) have officially been part of the Financial Sector. Real Estate has become a sector in itself under the Global Industry Classification Standard. It means that any Financial Sector ETF that uses an MSCI/S&P Index will see Real Estate companies and REITS removed and packaged into a separate sector.
REITs currently represent 4.4% of all stocks in the U.S. market yet investment managers only hold just over 2% in the average managed portfolio. Due to this recent announcement, we believe demand will push REIT prices higher as portfolios will inevitably be balanced to include the new REIT sector.
The creation of REITS provides an affordable cash flow from real estate. In an age of global money printing, real assets are a vital holding in one’s portfolio as they are tangible and REITS offer predictive cash flow via dividends. REITs have significantly outperformed the overall stock market (S&P500) over the last 25 years by 25%. A huge plus for investors is the tax-free structure of REITS which requires them to pass 90% of all profits to shareholders in exchange for zero corporate taxes.
We currently hold two REITs in our portfolio. One is Annaly Capital Management (NLY) which we bought on 10 February this year and is up 11% while offering a hefty 10.97% annual dividend. The second REIT we hold is iShares Mortgage Real Estate Capped (REM) which is up 5% since the May entry and this REIT also provides us with an annual yield of 10.25% just for holding it. Following is a link to our current holdings: https://wordpress.com/page/theimpartiallens.com/114