Image Source: Getty Images
Some investors consider buying a real estate investment trust (REIT) a waste of time. Because they don’t value prices, but individual properties do. Most commonly, people compare REITs to buying residential real estate (whether for rent or not). After all, retail investors, for example, rarely buy malls or office towers.
Unfortunately, rising prices for residential properties are not guaranteed. The price of an asset depends on supply and demand. If you’re in a hot market like Toronto or Vancouver, the value of your real estate assets is high now, but could rise in the long run, as demand continues to grow.
How to Guarantee a Price Increase for REIT Stocks
You can guarantee a REIT price increase by making sure you are buying with a large safety margin. The latest example is the pandemic market crash. During the economic blockade SmartCentres REIT (TSX: SRU.UN), high quality retail REITs have fallen to $ 13 per unit!
In addition, it miraculously maintained a monthly cash distribution throughout the trial. This means that investors could have fixed the yield at 14.2%. Of course, we didn’t know that REITs would keep their cash distributions safe. This can only be known by hindsight. That is the risk that buyers need to take. Since then, stock prices have risen 130% to just under $ 30 per share. The current yield of REITs is about 6.2%, which is a normal yield.
SmartCentres REITs are trading at $ 13 per unit, 5.7 times the normal valuation, but typically the operating price to operating capital ratio (P / FFO) is trading at around 13.9. Currently, it is trading at a level close to that level. Therefore, assuming retail REITs are growing very little in today’s environment, stock price increases are not guaranteed.
Besides buying REIT stocks cheaply, another way to guarantee a rise in REIT stock prices is to look for a growing industry. This could be an industry, data center, telecom tower, or healthcare REIT. You can investigate the following REITs and add your favorite REITs to the radar. Granite real estate, Summit Industrial Income REIT, Equinix, American tower, When Northwest Healthcare Property REIT.. The difficulty is that you are patient with waiting for the opportunity to buy them with a significant safety margin.
So who should buy REIT stocks?
If you are looking for diversified investment, you need to buy REIT stocks. Real Estate Investment.. For example, when investing selectively in industrial and health care REITs, REIT stocks can complement housing assets.
It also makes sense to buy a REIT to get passive rental income from real estate. By buying a REIT stake, you can become a passive landlord, settle down and earn income.
REIT stocks allow investors to invest in real estate areas that they would not normally invest in, such as industry, data centers, telecom towers and healthcare REITs. Investors should consider REITs as part of their diversified investment portfolio. After all, real estate is the official eleventh sector, with other sectors being information technology, healthcare, finance, consumer discretion, telecommunications services, industry, consumer staples, energy, utilities, and materials.
Should I buy REIT stocks?
https://www.fool.ca/2021/10/07/should-you-buy-reit-stocks-or-not/ Should I buy REIT stocks?