Before Buying A Rental Property, Consider These REITs

Oct. 03, 2020 9:00 AM ETAVB, WPC, IEF, IYR, SPY, VCLT, VNQ224 Comments

Summary

  • With stocks and bonds becoming unreliable, increasingly many investors are turning to rental properties in 2020.
  • In this article, we discuss another alternative: Publicly-traded REITs, which are similar to rentals, but in many ways are even better investments.
  • We highlight two REITs that are worth considering in today's market.
  • Looking for a portfolio of ideas like this one? Members of High Yield Landlord get exclusive access to our model portfolio. Get started today »

Today, interest rates are so low that investors cannot earn sufficient income through bonds (VCLT) or Treasuries (IEF). Moreover, the stock market (SPY) has become extremely volatile, and increasingly many call it a bubble.

With this in mind, it's not surprising that increasingly many investors are making the decision to buy a rental property in 2020:

source

  • High Income: Treasuries pay 0.6%. Corporate bonds pay 2%-3%. But most rentals earn anywhere from 5% to 10% in income each year. That’s a lot in a yield-less world!
  • Low Volatility: Stocks are notoriously volatile, especially in the midst of today’s pandemic. Rentals are much more resilient. Their value does not change materially from one day to the next.
  • Leveraged Appreciation: Interest rates are today at the lowest they have ever been. And this means that rental investors can boost their returns with cheap leverage.
  • Inflation Protection: With the central bank’s printing presses going wild, many investors are concerned about accelerating inflation. Rental properties are among the best inflation hedges because shelter is a necessity that cannot be replaced.
  • Control and Peace of Mind: You control your own investment and make your own decisions. You do not have to rely on a management team that could be conflicted.

As such, rental properties can be very desirable investments, and this is particularly true in today’s highly uncertain environment.

Bonds pay close to nothing. Stocks appear overpriced and risky.

Yet, rentals offer high income, leveraged appreciation, and lower risk.

Put in this light, it's a no brainer for many people. But before you make the final decision of buying a rental, we want you to consider another alternative, which is to buy publicly listed REITs (VNQ; IYR).

Rentals vs. REITs: Which is a Better Investment?

Before we dive into this

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This article was written by

Jussi Askola profile picture
58.01K Followers
Become a “Passive Landlord” with our 8% Yielding Real Estate Portfolio.

Jussi Askola is a former private equity real estate investor with experience working for a +$250 million investment firm in Dallas, Texas; and performing property acquisition in Germany. Today, he is the author of "High Yield Landlord” - the #1 ranked real estate service on Seeking Alpha. Join us for a 2-week free trial and get access to all my highest conviction investment ideas. Click here to learn more! 

Jussi is also the President of Leonberg Capital - a value-oriented investment boutique specializing in mispriced real estate securities often trading at high discounts to NAV and excessive yields. In addition to having passed all CFA exams, Jussi holds a BSc in Real Estate Finance from University Nürtingen-Geislingen (Germany) and a BSc in Property Management from University of South Wales (UK). He has authored award-winning academic papers on REIT investing, been featured on numerous financial media outlets, has over 50,000 followers on SeekingAlpha, and built relationships with many top REIT executives.


DISCLAIMER: Jussi Askola is not a Registered Investment Advisor or Financial Planner. The information in his articles and his comments on SeekingAlpha.com or elsewhere is provided for information purposes only. Do your own research or seek the advice of a qualified professional. You are responsible for your own investment decisions. High Yield Landlord is managed by Leonberg Capital.

Disclosure: I am/we are long AVB; WPC. 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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