Cash Is King

Mar. 19, 2020 7:00 AM ETBRMK, LADR480 Comments

Summary

  • This is a Black SWAN.
  • Predicting the evolution of its effects is well beyond the scope of human abilities.
  • Future investment decisions should be made on data, not emotions.
  • We are now stress testing our entire REIT universe to design and construct a dry-power portfolio.
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I know you’ve heard that the No. 1 rule in real estate is “location, location, location.” And perhaps it deserves that placement.

But a very close second, at least when it comes to REITs, is “cash is king.” In fact, you could even say that rule No. 1 doesn’t work long-term if it doesn’t automatically align itself with rule No. 2.

That’s because REITs pay out so much cash every year. It’s the main reason why investors buy into them in the first place: The dividends they’re designed to faithfully offer.

In order to stay faithful though, they have to have enough cash on hand to cover those shareholder perks.

They also need enough cash to cover everyday business expenses, such as salaries, utilities, taxes (although REITs do pay less in that regard by doling out more money to shareholders), and so many other expected or unexpected costs.

For the record, when I say “cash,” I don’t necessarily mean actual greenbacks being physically held in these companies’ hands. I mean money that’s not tied up in investments. So funds that are easily available.

It’s true that those funds aren’t growing over time, unlike so many other asset types. But it’s also true that, if things go bad, nothing else works quite as well.

And, guess what?

Things have definitely gone bad.

Source

The Circle of Market Life

Please don’t for a moment think that last line means things aren’t going to “go good” again in the future. It’s just a matter of how long the current “bad” will last.

With the virus spreading how it is, there’s no way to tell. It’s the same as how there was no way to tell this was going to be such a crisis – or a crisis at all – even late last year.

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This article was written by

Brad Thomas profile picture
106.85K Followers
Author of iREIT on Alpha
The #1 Service For Safe and Reliable REIT Income

Brad Thomas is the CEO of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 10,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.

The WMR brands include: (1) iREIT on Alpha (Seeking Alpha), and (2) The Dividend Kings (Seeking Alpha), and (3) Wide Moat Research. He is also the editor of The Forbes Real Estate Investor

Thomas has also been featured in Barron's, Forbes Magazine, Kiplinger’s, US News & World Report, Money, NPR, Institutional Investor, GlobeStreet, CNN, Newsmax, and Fox. 

He is the #1 contributing analyst on Seeking Alpha in 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, and 2022 (based on page views) and has over 106,000 followers (on Seeking Alpha). Thomas is also the author of The Intelligent REIT Investor Guide (Wiley) and is writing a new book, REITs For Dummies. 

Thomas received a Bachelor of Science degree in Business/Economics from Presbyterian College and he is married with 5 wonderful kids. He has over 30 years of real estate investing experience and is one of the most prolific writers on Seeking Alpha. To learn more about Brad visit HERE.

Disclosure: I am/we are long LADR, BRMK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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