Why REITs Are More Attractive Than Real Estate: RQI - Yield 7.4%

Summary

• Rental properties are commonly viewed as the best investments you can make.
• However, most rental investors overestimate returns and underestimate the risk involved.
• We explain why investing in property REITs is a much better investment and carries less risk.
• A great way to invest in property REITs is through a CEF - the Cohen & Steers Quality Income Realty Fund.
• RQI trades at a 3% discount and yields 7.4%.
• Looking for a portfolio of ideas like this one? Members of High Dividend Opportunities get exclusive access to our model portfolio. Get started today »

Co-produced with Beyond Saving

In our report today, we will highlight one of the best listed "Property REIT Closed End Funds": Cohen & Steers Quality Income Realty Fund (NYSE:RQI), and why investing in RQI beats direct "real estate" investments. RQI currently trades at a 3% discount and yields 7.4%

Why REITs Are More Attractive Than Real Estate

It's everyone's dream to have passive income - it could be getting a monthly payment from your tenant that's renting your apartment, garage, or even your warehouse. The prices of real estate increase with time as they are biased to rise with inflation, meaning that the return on the investment is stable.

However, owning real estate can be viewed as an investment opportunity and an income generator for the wealthy. Buying real estate is a big commitment that requires a substantial amount of capital that could throw you into debt. The big barrier to entry is that buying real estate is often expensive, especially prime properties. Most of us don't have the millions needed to invest in a portfolio of industrial or luxury residential properties. Furthermore, owning rental properties comes with costs and hidden fees which are the vacancies, capital expenses, and the time-value of your work.

Fortunately, you don't have to be a billionaire to be a part owner in thousands of the best real estate properties around. You can invest in Real Estate Investment Trusts (or "Property REITs") and enjoy the major benefits of being a landlord - consistent income and long-term capital gains. You also get to avoid the major downside of being a landlord, which is holding a less liquid asset.

Many property REITs are listed on public stock exchanges, making them readily accessible and quickly bought or sold. In most cases, each REIT specializes in a specific sub-sector of the real estate industry. Some specialize in residential real estate, some to healthcare and medical centers, others to industrial properties, among others.

Buying real estate through REITs provides one of the best options for retail investors. You can invest as much as you can afford. They are easily traded and require less effort than managing a rental property. REITs reward investors with dividends that are much higher than average, while also being extremely liquid with publicly-traded shares that can be easily and quickly be sold, if liquidity is needed.

Another important factor to take into account is that when buying into a Property REIT, you also are buying the management of the properties. This removes one of the biggest hassles of directly owning real estate. No tenant headaches, no chasing after your rental check, no maintenance and renovations. And you avoid all the related stress and anxiety.

Property REITs have legal distribution requirements that they have to pay in order to maintain their REIT status. REITs are required to distribute most of their taxable income, so as they expand, these REITs will have to raise their dividends. This is why property REITs offer investors the best of both worlds, high income and long-term capital appreciation.

Investing in Real Estate through a Closed-End Fund

Real estate is a very large sector with many sub sectors as discussed above. In order to maximize your returns, diversification can play an important role. One great way to do this is through a closed-end fund. CEFs provide immediate diversification in the sector and are usually actively managed, meaning that managers will find for you the best opportunities in the space to add to your holdings, and thus maximizing your returns.

This leads us to our report today about Cohen & Steers Quality Income Realty Fund ('RQI') one of the best Property REIT CEFs, and also one of our favorites. RQI currently yields 7.4%.

Sector Diversification Through High-Quality Companies

RQI provides exposure to many real estate sectors, including healthcare and infrastructure which are among the fastest growing industries.

Source: Cohen & Steers Quality Income Realty Fund - RQI

• Allocation to "Healthcare REITs": (15% allocation to this sector). Healthcare is one of the fast-growing and safest sectors to be invested in if you are a landlord. The sector has numerous tailwinds including a rapidly-aging population. The last people who will not be paying their rent are doctors and hospitals.
• Allocation to "infrastructure REITs": (13% allocation). The infrastructure sector provides basic necessities that tend to perform well in both good and bad times. RQI is invested in REITs that provide the infrastructure for mobile data. This sector is set to be a big winner with the conversion to 5G underway.
• Allocation to "industrial REITs": (8% allocation) Industrial REITs remained in high demand throughout the pandemic. The fundamentals remain incredibly strong as e-commerce takes on a more central role in our lives.
• Allocation to "preferred stocks": (10% allocation) I like the allocation to preferred stock. It provides a high income with lower price volatility. This is a good hedge that management uses to lower the price volatility of RQI.

The managers of RQI target the highest-quality REITs in each sector, and this is one of the secrets of its success. Today, RQI provides a healthy distribution of $0.08 per month for a 7.4% yield. The distribution is paid monthly which is a great plus for those looking for a regular paycheck.

The End of the Dark Era

You could argue some REITs didn't reach their pre-crash levels yet, why should they reach it anytime soon? The answer is that:

1. With the deployment of the vaccine in the US, around 50 million doses have already been given. With hundreds of millions doses available or expected to be soon, the pandemic era will be over soon.
2. With trillions of dollars being spent on stimulus plans, and more to be spent on infrastructure, property REITs are set to be some of the biggest beneficiaries. I expect this economy to be running hot soon - factories should be fully operating, offices will re-open and more people will get their usual employment checks back. On this track, REITs are positioned to see a full recovery at the end of 2021 and set to thrive once again.
3. We need to add to the above the current low interest rate environment that's very favorable to REITs. These companies can use low borrowing rates to acquire attractive properties. This dynamic will boost the performance of the REITs as we are set to see hyper growth in this sector. We already have seen several quality REITs raising capital to fund new acquisitions.

REITs: Strongly Outperformed All Asset Classes

Real estate has been one of the greatest wealth generators of all time. The same can be said about property REITs. Over the long term, property REITs have outperformed almost all asset classes.

Source: Nareit

As we can see from the chart above, since the year 1989, property REITs have returned 1895%, outperforming both the S&P 500 index (SPY) and the Russel small cap Index (IWM). If you are a long-term investor looking to maximize your returns, this is one of the best sectors to be invested in.

Valuation of the REIT sector

Property REITs today are one of the cheapest sectors around. Despite the surge of large indexes, investors have been hesitant of this sector due to the continued impact of the pandemic.

However, many of the higher-quality REITs already have their occupancy rates today at pre-pandemic levels, and yet the prices remain depressed. For other REITs, rent collections have been increasing in every industry and it will continue to improve as the wider economy recovers.

When we talk about REITs it's inevitable not to mention the Vanguard Real Estate Index ETF (VNQ). Perhaps the best valuation metric for REITs is to look at their dividend yield relative to the 10-year Treasury rate. When this spread is high, it has historically been a great time to buy REITs. When it's below zero, that has historically been a poor time to buy REITs.

When we look at VNQ's dividend spread compared to the 10-year Treasury, we can see that while it has come down from COVID-19 highs, it's still the highest it has been since July of 2009.

Data by YCharts

Was July 2009 a good time to buy REITs?

So if you missed the huge post-COVID sale on REITs, history tells us that you are not too late. There's plenty of room for upside and REITs can be expected to dramatically outperform for the next several years.

Overprinted Dollar and Rising Inflation

If you are worried about excess government spending and dollar over-printing, you are right to be so. All this spending will come at a cost and someone will have to foot the bill. I expect that hefty bill will come through inflation, which is indirect tax that we will all have to pay. This is unlikely to materialize over the next two years, but I fully expect to see its impact in the year 2023 and beyond, as the cycle of dollar printing takes its toll. Investing in high-yield REITs is a great way to hedge this risk. Property REITs offer a good hedge against inflation as prices of properties go up as inflation ticks higher. Because real estate is a physical asset with higher barriers to entry and a more limited supply, it's inherently inflation resilient. Rental prices are often directly tied to inflation indices and are raised every 1-3 years to match inflation.

RQI provides another hedge against our beloved overprinted currency. As a global CEF, where more than 16% of their holdings are abroad, diversification plays an important role in the decision you make for an investment - it's wise not to be overexposed to a single currency.

Source: Cohen & Steers Quality Income Realty Fund - RQI

RQI: A Clear Winner based on Performance

RQI is a long-term winner. It has proven itself in the market and its value increases steadily with time while paying out dividends.

RQI also has beaten the returns of the S&P 500 index (SPY) over the long term. Below is a performance chart comparing RQI with SPY since the year 2002.

Data by YCharts

This is despite the recent big run of a few tech stocks such as Amazon (AMZN), Facebook (FB), and Google (GOOG) (GOOGL) which are core components of the S&P index.

Top Manager in the Field

The managers of RQI are Cohen & Steers, the best management in this sector. They actively manage RQI's portfolio which maximizes your returns. By actively managing means that RQI consistently select the highest-quality REITs and have the flexibility to overweight specific stocks when there is an unjustified pullback, or reduce exposure to a stock that became expensive or has seen a deteriorating outlook. This is why before investing in any CEF, it's very important to assess the quality of its management. Decision making, in this case, is critical.

This management have proven their ability to outperform in both good and bad times, and to deliver market-beating results.

The Importance of Leverage in a Bull market

Another important point to add is that RQI is 22% leveraged, as we know leverage can cut both ways, negatively and positively, meaning that RQI share price falls faster on the way down and rises faster on the way up. As we noted earlier, we are at the end of the dark era; we expect a strong bull market in the Property REIT sector. RQI offers a great way to maximize your returns.

To shed the light on the fee structure, the average CEF fee typically ranges from 1.2% to 1.3% whereas the fee of RQI is at 1.1% (lower than the average). RQI carries interest expense of 0.89% for its leverage which is not part of the management fee. This is a low borrowing cost that individual investors cannot replicate through their brokers. This is not much to pay for the active work that RQI management provides and given their long term performance. Note that all the returns shown in the charts above are "net of management fees," meaning that RQI has outperformed the S&P 500 index and also VNQ (the passive Property REIT CEF), after taking into account the management fees.

A Discounted Purchase

Comparing the NAV to RQI share price, we can see that RQI is undervalued. The CEF is trading at a 2.7% discount to NAV - investing now will save you around 2.7% of upfront cost compared to buying all RQI's holding individually.

Going forward, I expect that NAV will see significant growth as REIT prices recover, and this should translate into much better performance for RQI in terms of capital gains for the years 2021 and 2022. This is on top of the monthly dividends that investors are cashing in.

Why Direct Investment in Rental Properties Carries a Higher Risk

Today, it's estimated that the "net return" on rental properties after paying taxes, mortgage expense, and maintenance is between 2% to 5% depending on the quality of the property and its geographic area. However, as we have seen during the pandemic, you could pass by many streets and see rental advertisements that could be hanging for several months.

Every month missed on your rental will hit hard as you are dependent on the monthly income of your tenant. If you lose just two months due to vacancy, this means that you are losing 16% of your gross revenues, translating into negative "net returns" for the year.

Having a vacant property for a few months can happen anytime, and not only in an extreme situation as seen in the pandemic. Therefore directly investing in real estate could be risky, especially for retirees who are dependent on rental income to meet their expenses.

Investing in listed REITs instead, you can still collect your regular income because these REITs are in general highly diversified and do not derive their rent from a single tenant. A loss of income from a few tenants will not impact their ability to pay you your dividends, as we have seen for the vast majority of REITs during the pandemic.

Bottom Line

Historically, even before the existence of stock exchanges, real estate has proven to be one of the most reliable and profitable investments ever. Real estate wealth has been transferred from generation to generation, because it carries an income generation power, and can be preserved without the need to sell it. Furthermore, it is also a good hedge against the risks of higher inflation as discussed above.

One of the best ways to invest in Real Estate is through the closed-end fund RQI:

1. RQI has one of the best track records among all Property REIT CEFs.
2. It provides instant diversification to the highest quality REITs.
3. It has outperformed the S&P 500 index over the long term, since the year 2002.
4. It generates a recurrent and reliable monthly payment through its distribution.
5. The yield is generous today at 7.4%, and RQI still trades at a discount to NAV.
6. The distributions are paid on a monthly basis.
7. Investing in RQI today, you are getting exposure to one of the most undervalued sectors in the markets: the Property REIT sector.

In effect, with RQI, you are getting a double discount. The first one relates to the property REIT sector that is one of the cheapest sectors on the market today. The second discount is that RQI trades at a discount to NAV. RQI is one of my largest holdings in my own retirement portfolio. I expect it to be one of the biggest winners in the coming years!

Analyst’s Disclosure: I am/we are long RQI. 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.

Treading Softly, Beyond Saving, PendragonY, and Preferred Stock Trader all are supporting contributors for High Dividend Opportunities. Any recommendation posted in this article is not indefinite. We closely monitor all of our positions. We issue Buy and Sell alerts on our recommendations, which are exclusive to our members.

Comments

[chris kliemt]

I hope it goes down a little bit in price. I'd like to add more. Years ago I owned igr. This is much better

[PendragonY]

@chris kliemt

The current price is okay, but I wouldn't object to grabbing some more shares if the price dips some either.

[pete crayton]

I bought RQI about 18 months ago and it returns about 6.5% based on my entry price. But I am still down 11%.

[PendragonY]

@pete crayton

Well, if you liked it at a price 11% higher than today, buy more. You will lower your cost basis and get an even better deal on more income.

[pete crayton]

@PendragonY I understand the philosophy, and have done that with some equities, e.g. GEO whose decline is inexplicable, but the failure of RQI to recover has caused me to lose faith.

[PendragonY]

@pete crayton

A lot of REITs have yet to recover so there isn't any way the RQI could.

[Yield Hawk]

If one were to invest $350,000 (20% down payment plus fix up costs) into a $1,300,000 portfolio of single family houses bought slightly below market value with an appreciation rate of 4% per year ($52,000) your ROI would be as follows.

Appreciation (75% leveraged) = 14%
Debt pay down/principle build up = 5%
Cash flow after all expenses plus property management = 10%
TOTAL ANNUAL TAX FREE ROI = 26%

RQI has averaged 8% since inception (minus taxes).

[ElPablo224]

@Beach Drifter Great post. I always said reits are great for people who can’t afford the down payments on large rentals.

Also with rates so low, you can borrow money for nearly free.

Reits charge for everything you can do for free and often make bad buys that you have 0 control over...All well paying themselves huge salaries.

[RealRural]

@ElPablo224 - Anyone who has ever had terrible tenants, damages and insurance claims, had to force evictions, and dealt with endless maintenance headaches would take a more skeptical view of your analysis. If you are handy and hands on, maybe.

Meanwhile, RQI only takes digital maintenance (looking at the price and quarterly metrics), you can decide to sell your "property" at anytime, and don't have to put time into deciding whether to buy new properties and pay property taxes. I know which side I come down on.

[Gwendal]

@RealRural Very true. And if you want to compare a REIT vs directly investing in properties, you also need to take into account that you can use leverage with your REIT stock too, not just with the RE investment.

[TheHornet]

I am long RQI and in general like Cohen & Steers.

However I think investors should be aware that many of their CEFs, including RQI, have an allocation to European banks' AT1 regulatory capital securities.

These are effectively junior to common equity, and would be written off whenever their mechanical or regulatory trigger is engaged. Effectively, these are the riskiest form of capital instrument available on the markets.

Of course, yields on these instruments are considerable, but I find it quite disingenuous to see an asset manager reach for yield in the portfolio of a real estate fund (or in the case of UTF, a utility and infrastructure fund) by buying banks' regulatory capital instruments, as arguably they are quite distant from what the fund's stated objective and investment style is.

Of course, these positions are disclosed in the fund's documents. But once again, they are classified in a group called "Preferred Securities-Capital Securities" and I wonder how many retail investors will be inclined to think those positions are actually preferred, rather than contingent convertible ones.

[MegaDivGuy]

I will take another look, I LOVE monthly pays.

[CB91]

This is a good article and glad I own some RQI, but did anyone see the massive dividend raises by BST, BSTZ and BMEZ?

[Dennis O]

@CB91 I own all you mentioned except BMEZ. for that one I went the THQ/HQH rout. I saw that Dividend action today on BSTZ /BST How great was that? I wondered if they were going to raise soon since the stocks have done so well. Was actually thinking of adding a little more with the downturn, LIFE IS GOOD- Dennis

[Vandooman]

Excellent article Rida. I own RQI and 6 other C&S funds. Good management. In fact I own 13 closed end funds for about 11% of my portfolio. They allow me to access market sectors where I wouldn't buy many of the underlying stocks, either because of stand alone risks or just lack of time to manage them. Closed end funds also are not hit with redemptions every time there is bad news. or dilutive new shares when there is good news. Also holding 3 Calamos funds. My yield on book for closed end funds is over 9%.

[Zheeeem]

RQI is good, but a bit expensive here. I'm a buyer below 11.

[Eileen Dover]

@Zheeeem I'll go in around 11, but if I RNP hits my price I'll get that instead.

[chris kliemt]

@Zheeeem it trades well below nav.

[PendragonY]

@chris kliemt

At the average discount to NAV a good price for the shares would be $13.50 or so. With NAV trending up as it has, I'd go at anything below $13.75 or so.

NAV is currently $14.49. So the $14.08 is below NAV (and not bad, just a bit higher than it has historically traded). How good a price that is depends in part on how secure you think the distribution is and how much higher you think the NAV will go over the next 6 months.

[Orbiting]

I got into RQI several months ago, based on an earlier article by Rida. It has been a great investment with a return over 25%, not including the dividends. I'm adding to my position at this time. Great article and advice!

[Income4ever aka Cyclenut]

Before I consider purchasing individual reits I compare the reit im considering to RQI over 5, 10 , 15 year period of performance. More often than not RQI outperforms..... and delivers monthly income to boot
Long RQI, O , WPC and VICI

[Xandi]

it's been a year and all we have seen from REITs are huge losses. I started buying a few hundred shares a few months ago but all I have accumulated since than are more losses. Reits are pretty much not a great investment.

[jasonjones]

@Xandi Depends what you buy and when. I bought DOC and HTA at discount. They are doing great. Added to VNQ which I have held since inception and doing great, but I am sweeping dividends. VNQI that I have held since inception isn't doing well but it's just a side bet, so I am holding. Why sell the loser when it will bounce back. Bought UBA along with a couple of other retail REITs. Sold them when they started recovering. Bought RFI and RQI at discounts. Both are doing fine. All REITs will do very well in a couple of years. With the exception of VNQI, all are paying dividends. Don't get discouraged.

[Eileen Dover]

@jasonjones I have some still underwater but in non-taxable accounts, so no reason to sell. I just let them sit and hope eventually they will recover enough so I get that investment back to sell. Most of the losers recovered so I got rid of them and changed my strategy to prepare for the upcoming correction. If you have safe dividend yielding holdings which did not cut in 1998, 2009, and 2020 among other years, you can reinvest the dividends until the prices recover should they have a deep drop.

[Eileen Dover]

@Rida Morwa "the pandemic era will be over soon". Sorry Rida, but nothing could be further from the truth. The vaccine may slow down the occurrences but the variants and too many people thinking they are invincible will keep the virus going well into 2022. Masks will be here for at least another year or so. All that is from the actual scientists, not some lunatic who said the pandemic would be over by last Easter. Otherwise, I like RNP over RQI because, as you have written, it is more of a safe investment. Thank you

[PendragonY]

@Eileen Dover

Infection rates are plummeting already. Texas has pretty much removed its COVID restrictions and Florida is pretty open too. Soon other states will follow suit.

[jasonjones]

@PendragonY I am a retired healthcare professional. Eileen is absolutely correct. Just because politicians want business as usual doesn't make it so. Both Florida has extremely high rates of infection because the state government never took the virus seriously. I still read the medical journals. Physicians are still concerned and scared for their personal health as well as patients.

[PendragonY]

@jasonjones

"Both Florida has extremely high rates of infection because the state government never took the virus seriously. "

That just isn't true. Florida has a larger population than New York, and has a higher number of older residents. It has fewer cases than New York and significantly fewer hospitalizations and deaths.

[Buy Low!]

On a slightly different note, on one of your investment ideas. Did you see that 2 day devastating 15% drop in THW? Thoughts?

[Davidlv15]

Rida's analysis was very informative and persuasive, as were many of the comments in this thread. One of my portfolios is dividend-focused, with NLY, BX, EPD and T my biggest positions. Today I sold 5,000 F shares for a 20% profit and purchased 5,000 RQI shares at an average price of 13.188 for the dividend portfolio.

[SC398]

@Davidlv15 Great move on RQI, it is a very attractive REIT CEF.

[Rida Morwa]

@Davidlv15 Thanks for the kind words!

[Chamazza]

Rida,

How do you stack RQI up against O?

[Rida Morwa]

@Chamazza They are very different investments, I own both.

[Rida Morwa]

@Chamazza With RQI you get an immediate diversification in the REIT sector, and you are buying the basket of REITs at a discount. So there is high income plus good upside.

In my opinion, O is a great undervalued opportunity, and this is why I own it too. O offers a great yield too, and a growing one.

All the best, Rida

[PendragonY]

@Rida Morwa @Chamazza

I too own both RQI and O. Both serve a purpose.

[ChristopherSmith]

The negative I see with RQI is the large distribution cut in 2008 which took about 5 years to recover. Has management made any changes since then to avoid this happening again in a significant downturn?

[PendragonY]

@ChristopherSmith

As a CEF, RQI can only pay out what it takes in from its holdings. The cut in 2008 was driven by REITs cutting their dividends at that time. So while management is looking closer at dividend coverage in its holdings, if the whole REIT sector takes a big hit on dividends, RQI will have to cut.

[ChristopherSmith]

@PendragonY So is that an argument for not buying a REIT cef and buying the cef sectors that didn’t cut distributions in 2008? Or maybe just buying the quality reits (WPC, O, etc) that didn’t cut their distributions?

[PendragonY]

@ChristopherSmith

It is an explanation of what happened in 2008. Lots of otherwise perfectly good REITs had to cut their dividends in the GFC. RQI learned a bit about that, but widespread devastation is always going to impact a fund. Even investing only in REITs that didn't cut the dividend then (and that would leave out a bunch of good ones) won't be a complete shield from dividend cuts.

[jazznut]

Been thinking of adding to my relatively small position in RQI for some time, but this evaluation may have been the clincher. Either RQI or STAG, but leaning towards a fund of REITs rather than an individual REIT.

[PendragonY]

@jazznut

I like STAG and own a bunch of it. But I'd add to RQI first (and actually have done so). STAG is a bit on the pricey side right now.

[SC398]

@jazznut investing in RQI is regarded as a discounted purchase, also it provides instant diversification to the highest quality REITs.

[Dennis O]

Another great Reit article. I own RQI and RNP plus a total of 25 Reit's at this time. The main thing I try to watch is Dividend cuts which are not necessarily bad thing and FFO as well as its NAV. I have a couple like SPG and ERP that I probably should have sold last March but they seem to be working there way back. I am not a knee jerk seller but maybe I should have been. You just can't beat collecting the easy no dirty hands dividends. You can also say the same about infrastructure Cef's like UTF-UTG-BUI and a number of others that I hold. I call them my forever stocks. Thanks for you time- Dennis

[Perciad]

@Dennis O sounds sensible

[Rida Morwa]

@Dennis O Thanks for reading and sharing. I do not like to trade either. I am a buy and hold for the long term for RQI, UTF, and UTG. When there is a pullback, I just use the dividends received the buy more shares. The fact that RQI, UTF and UTG pay monthly dividends helps a lot to take advantage of any pullbacks. This is the beauty of being a dividend investor!

All the best, Rida

[John R. Clark]

Every investment is "safe" within the correct range of expectations. Landlords of residential units who stay prepared for vacancies, rising taxes, maintenance and repairs, defaults, damage, oppressive laws, etc. at times, and who keep other resources to outlast spells of negative rental income, can prosper in this way for the long term. And good for those who do. Any gain to landlords is well and honorably earned.

People who speak dreamily of "passive income" from rentals must be pretty dense, unless a few landlords somewhere have trained their houses to paint and clean themselves, screen tenants, collect rents, report violations, and so on. If your point is to earn returns with minimal attention or effort, buying physical assets is a poor choice.

Even with the best sources of passive income, you must pay mind to your lifestyle and spending, market risk, and ordinary unwelcome events such as things wearing out or breaking. With a sensible view of these plus the certainty of guessing wrong or forgetting at times, you can have safe investments.

[SC398]

@John R. Clark Well said John, we must always keep an eye on the big picture of the economy and understand the market outlook.

[pete crayton]

I really want this to be so. I am looking for an excuse to get out of physical real estate.

I have been a follower of SA for several years now. One of my first acquisitions was RQI @ $14.13 and I am still down 7.4%. So I have had no capital appreciation, though the dividend has continued at about $400 per year which equates to about 6.5%. My REIT portfolio includes many of the issues suggested by SA contributors and for the most part mirrors this situation.

As a landlord with 10 sfh rentals acquired over the past 4 years, I admit it comes with it's trials and tribulations. I have eschewed debt and do most of the rehab and maintenance work myself, so my ROI is about 7% which does not factor in appreciation that has been on a tear lately. As I get longer in the tooth however and out of capital, I find the physical and financial limitations foreshadowing an end to the acquisition and renovation endeavors which is the most satisfying aspect; dealing with tenants and maintenance, not so much.

With the recent property price run up now would appear be a good time to jettison the rentals and invest in REITs, but my personal experience is not encouraging as you state here.

As I said, I am looking for an excuse to get out. If I sell today and net 1.3M, can I realistically expect $85K annual dividends and 3-4% appreciation?

[RL+130]

@pete crayton You should not expect to hold a cef throughout retirement and expect appreciation. When the market goes down hard they can go down even harder due to the leverage they carry and how they obtain distributions.

They should be used more as a trading vehicle to park cash while the market is in a steady trend. Buy in at a good price, and any sign of trouble, should probably be sold off first.

[PendragonY]

@RL+130

While I agree that before investing in a CEF one should understand how they are likely to react in a market downturn, I don't think they are trading vehicles at all. In fact, just the opposite.

An investor should look at how the CEF generates distributions and manage it based on that. Yes, prices can be a bit volatile due to the leverage. But that can be an opportunity as well. I bought more shares of most of the CEFs I owned during the COVID crash and nicely increased my income.

[RL+130]

@PendragonY I trade them all the time. RQI for example, I bought in at around 11, accumulated the distributions, and sold out at 15 before it dropped to 5.7. Bought back in at 11, collecting distributions, and will most likely sell around 14 or so again. Hoping cefs appreciate significantly is a suckers bet. Just look at their charts. No thanks