The Hands-on Owner Way as a Landlord
Sometimes when I am helping a friend navigate the investing waters, I learn that they own rental properties. During a recent conversation with a good friend, it became clear that they had great success buying a foreclosed property. They then put a lot of time and sweat into making the home a great place for a tenant. The property has appreciated significantly in value, and they have a good tenant. Their second property is a bit more trouble. Things like late payments on the rent can make owning one-or-two properties challenging. This is the hard way to leverage real estate for income.
The Career Way as a Realtor
Another way to make a decent living and perhaps even enjoy significant income is to become a realtor. This, however, can be feast or famine. It also can involve long hours and a lot of inconvenience. Nevertheless, I admire some friends who have done a great job helping others and even helping us with selling property. This route, however, is often focused on residential properties. When the economy is great, all can be well. However, downturns can be painful.
The Flipping Way
I have seen more than one “training seminar” that teaches novice investors how to buy and sell properties, much like someone might buy and sell used cars. In short, investors who flip properties focus on the purchase and subsequent resale of a property or a group of properties. This might include doing some repairs or improvements before you can resell. If you can do a lot of flips, and that is a big if, you can make money. On the other hand, you could lose a lot of money too. My goodness, this way seems fraught with dangers.
The REIT Way
A “REIT” is a “Real Estate Investment Trust.” There are many to choose from, and not all of them are worthy of an investor’s dollars. In our portfolio of REITs, we hold real estate that includes wonderful retail locations (think Walgreens, gasoline stations, convenience stores and other stand-alone locations), industrial and warehouse locations (including real estate leased by Amazon), hospitals, long-term care facilities, premium office spaces, and even cellular towers. In other words, we own small pieces of literally thousands of properties. This, in my opinion, is far better than owning two rental homes, trying to sell real estate, or flipping houses.
The REIT Way Benefits
The first advantage is time and paperwork. REIT ownership doesn’t require collecting rent, maintaining a property, dealing with tenant complaints or failures, paying property taxes, insurance premiums, or changes in a neighborhood. The second is that there is broad diversification. If even ten percent of the real estate has some type of problem, it isn’t likely to create financial hardship. Thirdly, many REITs pay increasing dividends, and some pay monthly, just like a tenant might. Can a landlord raise the rent annually? If they want to keep their tenants happy, they are probably not inclined to risk raising the rent until the tenant moves.
Which REITS Should I Buy?
Don’t buy just any REIT, and certainly don’t buy one just because the dividend yield is 6% or more. Like any other investment, you need to do some digging. You wouldn’t buy a rental property without looking at the foundation, the electrical, the location, or the condition of the roof and appliances. I hesitate to tell you which REITs I own, as there can be issues with any investment. However, I can tell you that our largest investments are in the following ticker symbols: ADC, CCI, GTY, MPW, O, STAG, and STOR. Of these, the largest investments are in O and MPW.
Realty Income Business Description (NYSE: O)
Realty Income, The Monthly Dividend Company, is an S&P 500 company dedicated to providing stockholders with dependable monthly income. The company is structured as a REIT, and its monthly dividends are supported by the cash flow from over 6,500 real estate properties owned under long-term lease agreements with our commercial clients. To date, the company has declared 608 consecutive common stock monthly dividends throughout its 52-year operating history and increased the dividend 109 times since Realty Income’s public listing in 1994 (NYSE: O). The company is a member of the S&P 500 Dividend Aristocrats index. Additional information about the company can be obtained from the corporate website at www.realtyincome.com.
The following four images help you see why I like “O” as an investment.