Important Warning To All REIT Investors

Summary

• This article is meant to warn those of you who haven't studied REIT history and lack an understanding of the full picture.
• We are very confident that it's only a question of time before REITs fully recover and break new all-time highs.
• Those investors who take the right actions today will make a small fortune in the long run.
• Looking for a portfolio of ideas like this one? Members of High Yield Landlord get exclusive access to our model portfolio. Get started today »

REITs (VNQ) are gaining a lot of attention right now.

On one hand, you have contrarian investors who are very bullish on REITs because they trade at near their lowest valuation in 10 years even as interest rates have hit 0%.

On the other hand, you have more skeptical investors who remain bearish due to missed rent payments, defaulting tenants and the risk of permanent changes to how we use real estate.

It's a very polarized market with a wide range of opinions.

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What's our view at High Yield Landlord?

We are very bullish.

We think that inexperienced investors who think that this crisis will permanently damage the REIT sector should go read some history.

In today’s article, we will bring this history to you. Here are five lessons on REIT history that should serve as an important warning to all the naysayers.

Lesson #1: Buying REITs After a Crash Has Always Paid Off

REITs have existed since the 1960s and gone through many crises and bear markets in the past. Yet, they always fully recovered, without exception:

Some of these past crises were much worse for REITs than the current one. As an example, in 2008-2009, REITs went into the sharpest real estate crash ever recorded with overleveraged balance sheets, and suddenly, banks stopped working and it was impossible to refinance debt.

It put the entire sector at risk of bankruptcies and forced many REITs to cut dividends and raise equity at highly-dilutive prices.

This was a perfect storm and it certainly was much more dangerous for REITs than the current crisis. Yet, REITs nearly tripled in just two years following the crisis and investors who had the courage to invest made a fortune.

REITs today enjoy the strongest balance sheets in their entire history, banks are working, and REITs

Analyst’s Disclosure:I am/we are long SPG; MAC; HT. 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.