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


  • 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

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This article was written by

Rida Morwa profile picture

Rida Morwa is a former investment and commercial Banker, with over 35 years of experience. He has been advising individual and institutional clients on high-yield investment strategies since 1991.

Rida Morwa leads the investing group High Dividend Opportunities where he teams up with some of Seeking Alpha's top income investing analysts. The service focuses on sustainable income through a variety of high yield investments with a targeted safe +9% yield. Features include: model portfolio with buy/sell alerts, preferred and baby bond portfolios for more conservative investors, vibrant and active chat with access to the service’s leaders, dividend and portfolio trackers, and regular market updates. The service philosophy focuses on community, education, and the belief that nobody should invest alone. Lean More.

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.

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 (147)

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 profile picture
@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 profile picture
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 profile picture
@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 profile picture
@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 profile picture
@pete crayton

A lot of REITs have yet to recover so there isn't any way the RQI could.
Yield Hawk profile picture
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%

RQI has averaged 8% since inception (minus taxes).
@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.
@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.
@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.
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.
I will take another look, I LOVE monthly pays.
03 Mar. 2021
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 profile picture
@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 profile picture
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 profile picture
RQI is good, but a bit expensive here. I'm a buyer below 11.
Eileen Dover profile picture
@Zheeeem I'll go in around 11, but if I RNP hits my price I'll get that instead.
@Zheeeem it trades well below nav.
PendragonY profile picture
@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.
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 profile picture
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
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.
@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 profile picture
@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 profile picture
@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 profile picture
@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.
@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 profile picture

"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.
On a slightly different note, on one of your investment ideas. Did you see that 2 day devastating 15% drop in THW? Thoughts?
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 profile picture
02 Mar. 2021
@Davidlv15 Great move on RQI, it is a very attractive REIT CEF.
Rida Morwa profile picture
@Davidlv15 Thanks for the kind words!
Chamazza profile picture

How do you stack RQI up against O?
Rida Morwa profile picture
@Chamazza They are very different investments, I own both.
Rida Morwa profile picture
@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 profile picture
@Rida Morwa @Chamazza

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

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 profile picture
@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 profile picture

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.
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 profile picture

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 profile picture
02 Mar. 2021
@jazznut investing in RQI is regarded as a discounted purchase, also it provides instant diversification to the highest quality REITs.
Dennis O profile picture
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
@Dennis O sounds sensible
Rida Morwa profile picture
@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 profile picture
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 profile picture
02 Mar. 2021
@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 profile picture
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?
@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 profile picture

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.
@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
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