Two weeks ago, I traveled to Maryland to check in on my rental property. The property management company had let me know that the tenants were finally out. Unfortunately, the place was trashed.
I knew it would require some TLC before anything else happened with it ... and even that was an understatement.
So, I made the decision to tear out the carpets, slap some paint on the walls and sell it “as is” to another investor. And I learned a valuable lesson over the past five years: Landlord life wasn’t for me.
The time and money that was required of me, even with a property manager, just didn’t justify the meager income.
But I wasn’t too brokenhearted because I discovered a much easier way to collect income from real estate that required much less effort on my part.
I’m talking about real estate investment trusts (REITs) … and don’t let the “trust” part make you think that you need a lot of money upfront.
REITs can be traded on public exchanges, are extremely easy to get in and out of and legally have to pass through most of their money to shareholders.
REIT status was created in 1960 in order to give all investors the opportunity to invest in large-scale portfolios of income-producing real estate. Although the first REITs primarily consisted of mortgage companies, now many own their own buildings and focus on specific industries or property types.
To qualify, the business must meet a series of requirements, including generate 95% of its income from dividends, interest and property income and have at least 75% of its total assets invested in real estate.
Here’s where it gets good for investors: REITs must pay out at least 90% of their taxable income to their shareholders.
This usually means higher, more stable yields for investors.
So, now that I, fortunately, don’t have my physical real estate bleeding me dry anymore, I headed on over to the stock screener on WeissRatings.com to see what my choices were for buy-rated REITs. I filtered out ones that were traded on Canadian exchanges.
There were no REITs currently rated higher than a “B,” so I decided to take a look at all the “B”-rated ones. Since I know how REITs operate, I looked at four important pieces of information: how long they’ve been around, what sector/type of real estate they invested in, how the shares have been performing in the past year and what the current distribution to shareholders is.
Let’s take a look at six of the top-rated picks:
1. Alexandria Real Estate Equities, Inc. (NYSE: ARE)
How long it’s been around: 27 years
Type of real estate: Office buildings and laboratories for companies in the life science and technology industries
Recent share performance: Up 10% over the past six months and 18% over the past year
Distribution: $1.09 quarterly for a yield of 2.4% based on recent prices
2. Lexington Realty Trust (NYSE: LXP)
How long it’s been around: 48 years
Type of real estate: Single-tenant leased commercial properties in the industrial sector
Recent share performance: Up 11% over the past six months and 21% over the past year
Distribution: 10.75 cents quarterly for a yield of 3.6% based on recent prices
3. Power REIT (AMEX: PW)
How long it’s been around: 32 years
Type of real estate: Sustainable real estate, including controlled environment agriculture (greenhouses), solar farmland and transportation
Recent share performance: Up 120% over the past six months and 223% over the past year
Distribution: 10 cents quarterly for a 1% yield based on recent prices
4. STAG Industrial, Inc. (NYSE: STAG)
How long it’s been around: 11 years
Type of real estate: Single-tenant industrial properties
Recent share performance: Up 10% over the past six months and 44% over the past year
Distribution: 12.08 cents monthly for a 4% yield based on recent prices
5. Innovative Industrial Properties, Inc. (NYSE: IIPR)
How long it’s been around: 4 years
Type of real estate: Industrial real estate assets for the regulated medical-use cannabis industry
Recent share performance: 40% over the past six months and 153% over the past year
Distribution: $1.32 quarterly for a yield of 2.9% based on recent prices
6. Safehold Inc. (NYSE: SAFE)
How long it’s been around: 5 years
Type of real estate: A mixture including multifamily, office, industrial, hospitality and student housing
Recent share performance: Up 4% over the past six months and 34% over the past year
Distribution: 16.22 cents quarterly for a yield of 1% based on recent prices
As you can see from these six top-rated REITS, there’s a lot of variety. IIPR allows you to cash in on medical marijuana, while Power REIT is also a sustainable energy play.
If you’re interested in real estate, or more specifically, generating income from real estate, I highly recommend that you take a look at all the REITs on the market right now.
But always remember, an REIT is only as good as the properties that it holds. And if it holds solid ones, you’ll be able to collect increasing income for many years to come.
Best,
Kelly Green
