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I Put Half Of My Net Worth Into Real Investments

May 09, 2020 9:00 AM ETBAM, BAMGF, IRT, VNQ, BN:CA, BN.PR.R:CA294 Comments


  • I invest very differently from most other investors.
  • My portfolio is unique in that it's heavily allocated toward real asset investments that generate steady cash flow.
  • I believe that most individual investors would do much better following a similar approach.
  • Looking for a portfolio of ideas like this one? Members of High Yield Landlord get exclusive access to our model portfolio. Get started today »

Most people invest most of their wealth into stocks and bonds. Coming from a private equity background, I never really understood the appeal of this approach to investing.

Bonds pay literally nothing when you account for inflation and taxation. A long time ago, when you could still earn something from bonds, they were pictured as safe income investments, but in May of 2020, with the 10-year Treasury at 0.6%, I would not even invest in them for diversification:

Stocks, on the other hand, could produce attractive long-term returns in theory, but in reality, they have produced very disappointing returns for most individual investors.

You often hear that you can expect 8%-12% per year investing in stocks, but in reality, the average annual return of individual investors was just 2.6% over the past 20 years:

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Why is that?

There are five main reasons why traditional stocks are poor vehicles for most investors:

  1. They are very volatile.
  2. They pay little income.
  3. They feel like speculation.
  4. They can be traded in a few seconds.
  5. They are very difficult to understand.

And because of that, investors are quick to lose patience when things don't go their way. You end up trading way too much. You make poor emotional decisions. You incur a lot of transaction costs. And finally, you never really understand in what you are investing so you bail at the worst time.

Think about it for a second.

If you own a portfolio of 20 stocks, each operating a different business, how realistic is it really for you to understand all those businesses?

Business is extremely complex. In fact, it's so difficult that most who try at it fail miserably. Yet, when investing in stocks, most investors think of themselves as some type of business guru that can predict what succeeds and what

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This article was written by

Jussi Askola, CFA profile picture

Jussi Askola is the President of Leonberg Capital, a value-oriented investment boutique that consults hedge funds, family offices, and private equity firms on REIT investing. He has authored award-winning academic papers on REIT investing, has passed all three CFA exams, and has built relationships with many top REIT executives.

He is the leader of the investing group High Yield Landlord, where he shares his real-money REIT portfolio and transactions in real-time. Features of the group include: three portfolios (core, retirement, international), buy/sell alerts, and a chat room with direct access to Jussi and his team of analysts to ask questions. Learn more.

Analyst’s Disclosure: I am/we are long IRT; BAM. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (294)

whytryexistent profile picture
Any currencies you like in the recession , and do u like gold here
Jussi Askola, CFA profile picture
@whytryexistent Thank you for your comment. I do hold a little bit of gold for diversification. We own a global REIT portfolio, exposed to many currencies to mitigate risks: seekingalpha.com/...
Gold seems a bit overextended for now, and may be topping out. Imo it might drop back to the $1450 to $1525 range, while some think it might get to $1250 or less. PGM(platinum group metals) such as platinum, palladium, and rhodium are cheap now. Imo the best way to play them is SBSW, the largest miner of platinum and rhodium, and second largest palladium miner. They also mine plenty of gold though. Gold is only around 30% of their revenue. They started as a gold miner, and kept buying more PGM mines. SBSW shares are very cheap now at around $7.50. Consensus is for them to earn $1.84 an ADR in 2020 and $2.25 in 2021. The first quarter this year was their best quarter ever. SBSW mines in South Africa, The US, and Zimbabwe. South Africa may allow underground mines to operate fully starting around the end of this month. The South African underground mines are for now allowed to operate with just 50% of their normal staff.


why not just buy a property or two yourself? Buying a REIT is good for investors that want some exposure to real estate in their investment portfolio (or a sector that they cannot access with their existing funds). However, if you are going to put 50% of your net worth into REITS... just do it yourself and save all the management fees and operating expenses and finance charges.... Furthermore, you have full visibility as to the performance of your portfolio. You dont need to question wether you are getting paid or if the dividend is getting cut.
@Tinkalicious I have done both over the decades. I think owning when your young is a good way to learn business and you get the headaches but also the pride of ownership and creating something. As you age you don't want the headaches as much. But a small investor can be much more nimble and tend to have his/her ear to the ground. My best sale was at a 2% cap rate in 2005. And than re buying in 08 09 10 at 12%. Reits can be good, but you need to be very very selective. Some use way too much leverage as they swing for the dividend fences.
StockMagicMan profile picture
I have also done both over the decades - had a lot of help from a Real Estate Agent who was like a grandma to me when I was starting out... at one point in time, I had a dozen rental homes and it was work.. as I am a great grandpa myself now...... REITs are MUCH easier on me personally.
Thank God they didn't have Seeking Alpha in 1929 or many of us may never have been born!
F. I. E. R. profile picture
Jussi, Thanks for the 2nd quick reply.

You have been very busy answering lots of questions but you STILL did not answer mine, so I will try once again.

You stated "half of your net worth in Real Investments".

If your willing to share, where have you placed the other half of your net worth at this time to balance your portfolio?
Jussi Askola, CFA profile picture
Thank you for your question. It is a combination of traditional equities, private fixed income, cash and metals. We focus on the real asset side at High Yield Landlord: seekingalpha.com/...
Jussi, forgive me if you already discussed this but do you have an opinion or thoughts on Brookfield Real Asset CEF RA. It's has a juicy 16% monthly payout. Since you own BAM i assume your a Brookfield fan.
Jussi Askola, CFA profile picture
@Cyclenut I am not a buyer of it. It is mostly fixed income based. I prefer to own the assets directly.
wmenuet profile picture
I have been following your articles, Jussi, and this one really hit home with me. Very good stuff. With 35 years in the the RE biz working for both a developer and as a broker, I have lived the business and while still in the business, I am overweight REITS, probably 50% of the equities I own, for all of the reasons, you stated so well in this article. I’ve been in partnerships on RE deals, and have worked in and around many investment and development deals, but I am content and confident to take the income and growth, in well chosen REITs. I see the underlying value, as you do, and for me, it’s an easy choice... bargains out their right now, I am buying more.
Jussi Askola, CFA profile picture
Thank you for sharing your thoughts @wmenuet

The most important is investing is temperament. And investing in things that you understand helps greatly in remaining disciplined and consistent about your approach.

Feel free to join us for a free trial to access our Top Picks among discounted REITs: seekingalpha.com/...
VNQ was launched in Sep 30 2004, to last Friday, $10000 investment in VNQ = 14923, 10000 Investment in SPY = 26166. In past 10 years, 10000 in VNQ =14338, 10000 in SPY =24613, In past 5 years, 10000 in VNQ =9446, 10000 in SPY = 14028. all quoted from Morningstar.com.

are there any investment products indexed to FTSE indexes? without an investable index, you are talking about stock selection. that is equivalent of talking about some one investing in stocks but just doing Amazon etc, out of luck or genius. .
Jussi Askola, CFA profile picture
Note that we are not suggesting to invest in VNQ. VNQ is a poor representation of the REIT sector. It is market cap weighted and heavily allocated to the mega cap REITs.

There is 4 small REITs for each large REIT. It ignores most of the sector. You can find more appropriate indexes here: www.reit.com/...
thanks for reply but there are no ETFs tracking these indexes. I am very curious if the returns are so good why Invesco etc does nothing. To replicate an index by an individual investor is not practically possible although the trading costs have been reduced to zero.
I am a little confused with those calculations; mortgage of 1.375mn will net 10k monthly payments, and we earn 16k and net is 6k per month.. which is roughly ~5% per year on 1.375 mn downpayment ?
like Brazilian real?
I, Investor profile picture
Nice article, Jussi. I agree and am heavy on REITs, from O to IRM, ENB, BEP, MPW, GMRE and more. While this portfolio seldom out-performs, say the S&P, it never loses more in a negative year. Fits well with my understanding and risk tolerance. Cheers!
Jussi Askola, CFA profile picture
Thank you for sharing your thoughts. Note that O, ENB, and MPW have massively outperformed the S&P500 over the past decade. Not sure about BEP. Similar companies are very opportunistic right now: seekingalpha.com/...
I, Investor profile picture
True, but REITs are not my only holdings, just a larger than average part of my portfolio. I also hold T, USB, BAC, SU, BNS, and several others. Thanks for replying.
Great Idea! Also follow Blackrock's 5.7% investment in symbol NATNordic American announced today!

Jussi Askola, CFA profile picture
Thank you for sharing. We are staying away from the Blackrock investment products. We prefer to do our own selection: seekingalpha.com/...
@IMHYEO Blackrock been in NAT for 4 or 5 years. sitting just below 5%. Its a passive investment and means nothing.
@ Jussi Askola ,
I like your approach and reasoning!
I wanted to ask you :
Have you evaluated the risk of getting pro socialism / pro communism officials elected ?
Think of a Sanders / Cortez combo in White House..
What would happen if they raise your taxes , limit your rent increase to 1% a year so it’s below inflation rate and or worst case scenario:
Appropriate your building for the greater good of everyone...
Are those legit concerns?
Jussi Askola, CFA profile picture
Note that REITs have done well under democrats and republicans over many decades. The need for real estate does not go away and high quality properties will always thrive.

Some property sectors are more attractive under different political agendas. As an example, under Sanders, I would be less interested in apartment, senior housing, and prison REITs. You need to be picky.

Our portfolio is positioned to thrive, regardless of who wins the election. Feel free to join us for a free trial: seekingalpha.com/...
@dili80 Its a huge concern and one day those types will take over and do what they did in NYC with a permanent rent control and worse ALL new apartments built are automatically rent controlled, so of course apartment building has stopped. They put a heavy transfer tax on as well. So now turnover has died. So yes very legitimate concerns. I sold my rent stabilized apartments in NY many years ago to people who thought it would get better and now its hopeless. Used to be if a renter left or died we got vacancy decontrol. Gone.. Thanks for pointing this out.
Jussi Askola, CFA profile picture
Please try to keep politics out of the discussion. This is not the place for that. It also isn't such a simple question. As an example, rent control has led to accelerated appreciation in certain German cities due to the lack of new supply.
MrFireby2023 profile picture
I’m a subscriber because I favor your investment philosophy and style. However, at present I am comfortable holding a high cash level of 40% because of risks. I love your REIT’s but with such a high unemployment rate, even underlying apartment investments held by IRT could suffer with families unable to pay rent.
I’m very pessimistic about the near term as our economy will worsen, layoffs will continue, people like myself will remain cautious and stay home bound (I haven’t left my home in seven weeks!) and politically, no congressional agreements on further stimulus or for a SOLUTION to the current troubles, will go or be passed smoothly.
Jussi Askola, CFA profile picture
Thank you for sharing your approach @MrFireby2023
You are absolutely right that a lot REITs will suffer in the near term. Most businesses will. We believe however that the pain is temporary, and not permanent. Therefore, the deeply discounted valuations are an opportunity.

Real estate should be valued based on decades of cash flow generation. Not just a few quarters. Just because things will get worse, does not mean that now is not the time to invest. The market is a forward looking machine and prices are very cheap if you are long term oriented.

I see you on the chat at HYL: seekingalpha.com/...
tomngraber profile picture
Bingo! If tenants are hard pressed to pay rent you have problems. To get a better tenant may be difficult, and it may take months to evict a unpaying tenant. Management and maintenance costs are fixed, and cash flow may be drastically reduced.
Jussi Askola, CFA profile picture
95-100% rent collection rate. A lot of fears but so far so good.
Andrew Feazelle profile picture
As a shareholder of SPG, VTR, STWD, KIM, O, MPW, I can tell you right now being overweight in RE is not a good idea. I'll be renting out a townhouse I never use in Los Angeles after I'm done putting in some new floors and making new cabinets, but once you go beyond that mom & pop type stuff....
Jussi Askola, CFA profile picture
Your REIT Portfolio is invested in the heavily impacted sectors: retail, senior housing, and mortgage REITs. These should be a minor portion of a REIT portfolio due to their higher risk profile.

Our combined allocation to retail, mREIT, senior housing is ~10% of our Core Portfolio: seekingalpha.com/...
Robert Hutten profile picture
Putting one half of one’s money into real estate is bad advice. One need only go to Vanguard site and compare the ten year growth of $10,000 with dividends reinvested to see that. Real estate (VNQ) grew to $21,711.00 while the plain vanilla S&P 500 grew to $38,977.22. If one wanted to invest in growth, the technology ETF (VGT) would have grown to $47,259.81. And even if one were inclined to be stodgy and ultra careful, the utilities ETF would have grown to $27,453.29, more than VNQ and with less volatility. If you really need cash sell some stock. With most discount brokerages it cost nothing to do that now. The Morgan Stanley chart includes both the internet bubble and the financial crisis—a chart ten years from now will most likely pick up the data from a huge wave of retail and commercial property bankruptcies. So I heavily discount it as any yardstick for future performance. Bottom line is nothing will most likely even come close to a well-diversified portfolio both for returns and risk reduction.
Jussi Askola, CFA profile picture
Please note that I am not suggesting 50% into "real estate", but into "real assets", which is a much broader term. Real assets can be anything that is tangible and a valuable part of our infrastructure. This is a vastly larger asset class than stocks.

Think of apartment communities, rental homes, office buildings, distribution centers, factories, airports, railroads, farmland, windmills…
It is very diverse.
bo0bo0 profile picture
@Jussi Askola

i think that shares of T are no less "real" than shares of a REIT.

after all, as i believe you point out, the value of anything comes from what human beings do with it. those human activities are the "real" assets.

as to which shares are more valuable ... i suppose that is up to the individual investor, based on his individual goals. personally i have a quite a large allocation to REITs, thanks to you and Brad. but my PFE is no less real than my WPC ;-)
Jussi Askola, CFA profile picture
REITs only own real assets and they generate income from long term leases.

Only a tiny portion of T's assets are "real" and they do not produce income from long term elases.

Two completely different things. T is a business that rents form REITs.
Jussi any comment on IRT div cut?
@BLEVCO1 They need to avert a covenant breach if rents in May & June drop. The IRT bank debt trades at 92.5c on the dollar. Who knows more about IRT, the banks or Jussi?
Jussi Askola, CFA profile picture
Their payout ratio was tight pre-crisis and they were expected to readjust the payout ratio. At a 5.2% yield, they have one of the lowest payout ratios in their industry at ~60%.

@CmonDown 92.5c on the dollar means that they are in distress? I am not sure what you are trying to say here.
@Jussi Askola Yes Jussi, when the banks offer the bank lines for sale at 92.5% and not 100c on the dollar the banks know these guys are stressed. They are turning over the bank debt at a 25 million dollar discount. I'm talking the Key bank Term loan maturing in late '24. The delayed draw (dd)maturing in jan 24 trades at 94.5c.
There's 300 million out between the 2.
sourdo profile picture
"You often hear that you can expect 8%-12% per year investing in stocks, but in reality, the average annual return of individual investors was just 2.6% over the past 20 years"

Is that for real? And here I thought I had room for improvement!

I started a Roth in 2004. All I can say is from 2016 EoY to 2019 Eoy I averaged 22% a year in total gains being invested in BDC's. Before the carnage this spring, I was over 300% in total gains, or roughly tripled my money. I have to average some years, if you look at a chart of my gains, it looks like a dog leg run over by a bus. But in all, I'm satisfied.

So far in the specter of covid-19 land I've lost half or so of my profits, but still have twice as much as what I invested. I told my Mom that the other day, she snorted with a laugh and said I didn't need to worry. But on those days in late March, I was sure tested. But I've been through this carnival before, and it will get better.

I attribute my best gains to being invested in Business Development Companies and the big dividends, and reinvesting those. I quit investing in "the next big deal", as I was lousy at it. Facebook? How high could it go? I thought when it ipo'ed and dropped to $19 a share and I passed. Well phooey on that, lol!

I've never been real keen on real estate. BDC's have some exposure to REIT vehicles, and that is good enough for me. BDC's also have a great built in diversification that I like.

And with that, the one and first mREIT I bought last summer I bought on a note on stock talk, was Cherry Hill $CHMI. And I sold it in late January for a decent profit/dividends. And was very grateful I sold. Because right after I sold it, CHMI jumped up to $16+ a share, and I almost had some sellers regret there.

Almost. From that price CHMI fell over 80% from $16 to $2.89, and is still sitting at a huge loss right now today. I have no sellers regret today, and that scared me off from anything real estate you can have it all.

Meanwhile, I have gotten back 1/2 of my losses since Feb 6, 2020, my highest high, I did not panic sell, and by buying some shares on the cheap and doing what else works for me, cost averaging.

And I'll be quite frank here, mREITS, and their hazy way of dealing with debt, these things called derivatives (beyond my IQ), this vaporous whatever of charts and figures, it is beyond me, I don't care, yes people must pay rent, until they can't. And with my short experience with CHMI (and let us not forget 2008!), I'll pass on anything that has to do with realestate period.

And I can see your point in apartments, but what happens when the economy really goes to crap? And noone is paying rent? For a long time?

And saying there are some great values right now, is kind of smug isn't it? That is great if you're a brand new investor or had the gumption to sell everything last February. But most of us didn't, and got walloped like I did, and are sitting on big losses, and there is nothing to do but wait it out, and pray the dividends keep coming in (paid to wait).

And there'll be some hot shot bragging (I read them everyday on SA) how he sold everything and is making a killing, well good for you, but what is the point? Who saw this coming, or rather the intensity? Grow some thick skin, get in line, and wait.

Some BDC's have some mREIT exposure, and that is enough for me.

There are some interesting points on this article.

For now, I am holding all incoming dividends, I do not think anything is "over", yet. I do see more pain ahead, at the least until next year. And if I'm wrong, so what, and then I'll reinvest and move on. I'm not going to get all hot to trot to try and nail a top or bottom as that endeavor is mostly luck for me, not always, but mostly.

Jussi Askola, CFA profile picture
Thank you for sharing your thoughts. Note that we warned against mREITs before the crisis: seekingalpha.com/...
JRinSF profile picture
Jussi, cap rates have been declining for a long time from high levels to very low levels, increasing real estate values. At the same time rents have dramatically increased (much faster than income) in the past ten years, further increasing real estate prices.

What happens if these strong tail winds reverse, especially with highly leveraged real estate? What happens if cap rates increase from incredibly low levels while rents stay flat or decrease from the incredibly high levels? And what if operating costs increase at the same time that rents are flat or declining? I think that if you run numbers for that scenario you will find that real estate isn't the slam duck safe haven that you are describing.

It would be interesting to see your example with cap rates increasing by 2%, rents decreasing by 10%, vacancy rates increasing by 10%, and operating costs increasing by 10%.
Jussi Askola, CFA profile picture
We expect cap rates to compress even further now that interest rates dropped to 0. The 10-year treasury went from over 3% to just 0.6% in a little over a year. Cap rates may seem low to you in the US, but they are actually quite high relative to other parts of the developed world.

I used to work in Germany where cap rates are 2-3% for the best assets. The US has a long way to go.
JRinSF profile picture
Jussi, you may expect cap rates to decrease and rents to increase and vacancy rates to stay where they are, but could you humor us by stress testing your scenario?

I can imagine cap rates going higher even with interest rates lower if investors perceive more risk so demand higher returns I can imagine rents falling if there are falling incomes and declining business profits. I can imagine higher vacancy rates in difficult economic times. I can also imagine operating costs going up, in part to deal with requirements related to COVID-19.

I personally own apartments, offices, and retail space, along with student housing and vacant land. Every single one of these sectors is challenged at the moment. Luckily I have zero debt on my investment properties and significant savings. Many others are not as fortunate.

Please stop selling real estate as a simple, care-free, guaranteed investment option. It has risks and rewards, just like every other investment option.
Jussi Askola, CFA profile picture
NOI will be volatile in the near term, but as we put this crisis behind us, quality properties in high growth areas will produce higher NOI in coming 5 years. More on this here: seekingalpha.com/...
Some REITs are cutting dividends due to deteriorating business conditions. This creates hazard for the retail investor
Jussi Askola, CFA profile picture
You are correct. You need to be very selective and diversify appropriately. REITs are not immune to the covid crisis. We just think that from a valuation / fundamental standpoint, they are now much more opportunistic than other sectors. That is why we are buying: seekingalpha.com/...
You are ignoring all of the people and businesses who are not paying rent or mortgages at present. The Democrat party is promoting and advocating rent, mortgage and all loans (student, auto, etc) forgiveness, forbearance or just not paying. Period. Currently, their are 30 million UE workers. Many are demanding continued shut down of the economy. Individuals and businesses won't pay rent or mortgages without income.
Jussi Askola, CFA profile picture
That is simply not true. 95-100% of rents are paid in the residential REIT sector. Check out their updates instead of reading misleading headlines.

Secondly, we invest in apartments that are located in business friendly high-growth states with high income-to-rent ratios: seekingalpha.com/...
William Darusmont profile picture
well said, Jussi!
@pyrite99 A rated paid 97% in May B apartments like this we don't know, but likely Not, those renters bore the brunt of the first wave of layoffs.
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