Roland is an experienced investment writer and analyst with a particular focus on dividend investing and value opportunities. He's been writing for the Motley Fool since 2012 and also contributes to other UK investor platforms, such as Stockopedia.
Roland holds the CFA UK Investment Management Certificate (IMC) and has passed the CFA Level 1 exam. A keen private investor, he also runs an internet business.
The content of this article was relevant at the time of publishing. Circ*mstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.
I like the long-term income appeal of commercial property. But I can’t buy an office block or a warehouse. Instead, I invest in REIT stocks.
These real estate investment trusts can give me access to a regular income from a broad mix of commercial and industrial property.
If I wanted to invest directly in such property, I’d need millions of pounds. Using REITs, I can get started with just a few hundred.
Here are the three REITs I’d buy to get started in property investing today.
#1 Landsec
FTSE 100 REIT Landsec (LSE: LAND) owns a mixed portfolio of top-quality London office space and large regional shopping centres and retail parks.
Landsec’s focus on quality has helped it to keep occupancy high, despite changing market conditions. Modern London offices in good locations are still in demand, as are leisure and retail sites at centres such as Bluewater and Westgate.
One possible risk is that a UK recession could reverse the recovery that’s been seen during the pandemic. Landsec could be forced to cut rents in order to keep occupancy high. That could put the stock’s 6% dividend yield at risk.
There are always risks, but in my view Landsec’s strong portfolio and low levels of debt mean that the outlook should be fairly safe. I’d be happy to buy this REIT stock as an income investment today.
My second pick, Primary Health Properties (LSE: PHP), owns more than 500 GP surgeries and local medical centres around the UK.
Healthcare property is known for its long leases, and PHP’s portfolio reflects this. The trust’s average remaining lease length is more than 11 years, while 89% of its rent is paid with government funding.
This should mean that PHP can provide very reliable cash flows for the foreseeable future. The main risk I can see is that rising interest rates mean that debt costs will rise. PHP’s interest costs are mostly fixed for the next eight years, providing some protection. But I think this is still a situation that’s worth watching.
PHP shares offer a forecast dividend yield of 4.8% and trade just above their book value. That’s not especially cheap, but with occupancy at 99.7%, I think the stability of this business is worth paying for.
#3 Tritax Big Box REIT
Warehouses have been a hot investment area in recent years. One of the bigger players in this sector in the UK is FTSE 250 firm Tritax Big Box REIT (LSE: BBOX).
Key tenants include Amazon, Morrisons, and B&Q. Tritax recently reported a 0% vacancy rate, with an average remaining lease length of nearly 13 years.
Soaring prices kept me away from warehouses during the pandemic, but I reckon valuations are now starting to look more reasonable.
A UK recession could hit Tritax as demand for new warehouse space might fall. But the company’s modern properties look relatively low risk to me. I’m also reassured by the REIT’s relatively low level of debt.
Tritax shares now trade at a 30% discount to their book value of 240p and offer a 4.2% dividend yield. I think this could be a good entry point for this stock.
Since REITs are required by the IRS to pay out 90% of their taxable income to shareholders, REIT dividends are often much higher than the average stock on the S&P 500. One of the best ways to receive passive income from REITs is through the compounding of these high-yield dividends.
REITs make money by investing the corpus into various real estate properties such as commercial properties, workspaces, malls, etc. They receive rental income from these properties, which are distributed as dividends to the unitholders. Also, they make money through capital gains by selling the assets.
The conservatively financed REITs have outperformed the aggressively financed REITs in most cases over the long run. That's despite typically offering much lower dividend yields and trading at higher valuation multiples.
Reinvesting REIT dividends can help retirement savers grow their portfolio's investment, and historically steady REIT dividend income can help retirees meet their living expenses. REIT dividends historically have provided: Wealth Accumulation. Reliable Income Returns.
Over time, the cash flow generated by those dividend payments can supplement your Social Security and pension income. Perhaps, it can even provide all the money you need to maintain your preretirement lifestyle. It is possible to live off dividends if you do a little planning.
For purposes of the REIT income tests, a non-qualified hedge will produce income that is included in the denominator, but not the numerator. This is generally referred to as “bad” REIT income because it reduces the fraction and makes it more difficult to meet the tests.
Individuals can invest in REITs in a variety of different ways, including purchasing shares of publicly traded REIT stocks, mutual funds and exchange-traded funds. REITs also play a growing role in defined benefit and defined contribution investment plans.
If you want to build passive income from real estate without the fuss and bother (not to mention the hefty down payment) of buying and managing properties yourself, REITs may be the answer.
The biggest risk to REITs is when interest rates rise, which reduces demand for REITs. 6 In a rising-rate environment, investors typically opt for safer income plays, such as U.S. Treasuries. Treasuries are government-guaranteed, and most pay a fixed rate of interest.
Direct real estate offers more tax breaks than REIT investments, and gives investors more control over decision making. Many REITs are publicly traded on exchanges, so they're easier to buy and sell than traditional real estate.
“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
REITs can provide a steady stream of income through dividends, making them an attractive option for retirees. However, like any investment, they come with risks and it's crucial to balance these against potential benefits.
For investors seeking a steady stream of monthly income, real estate investment trusts (REITs) that pay dividends on a monthly basis emerge as a compelling financial strategy. In this article, we unravel two REITs that pay monthly dividends and have yields up to 8%.
Properties can generate rental income, which, after collecting fees for property management, provides income to its investors. These REITs generate income from renting real estate to tenants. After paying expenses for operation, equity REITs pay out dividends to their shareholders on a yearly basis.
Revenues are generated primarily through rents and not by reselling properties. Mortgage REITs. Mortgage REITs lend money to real estate owners and operators directly through mortgages and loans or indirectly through acquiring mortgage-backed securities.
To qualify as a REIT, companies must pay 90% of their taxable income to shareholders. REITs are an example of passive real estate investing because the holding company operates the property and pays its shareholders dividends.
Return a minimum of 90% of taxable income in the form of shareholder dividends each year. This is a big draw for investor interest in REITs. Invest at least 75% of total assets in real estate or cash.
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Introduction: My name is Cheryll Lueilwitz, I am a sparkling, clean, super, lucky, joyous, outstanding, lucky person who loves writing and wants to share my knowledge and understanding with you.
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