Building Your Real Estate Empire

It's not about buying stocks - it's building wealth

Author

Tim Melvin
September 18, 2024

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I have heard all the excuses and arguments. "Real estate investment trusts are for old people who need dividends." "REITs are boring." There are a million of these, almost all in the same vein and almost all wrong.

While it is true that older people need dividends, the idea that younger people do not need them is a fallacy. Since 2000, the S&P 500 has returned about 6.1%. The average yield has been about 2%, so roughly one-third of the return. If you reinvested the dividend, your compounded annual return becomes 8.1%. More than 40% of the overall return directly results from dividends.

The index of equity REITs has returned 9.54% over the same time frame, with dividends accounting for about two-thirds of the return. If you were one of those people who needed dividend income, your income started at over 8% compared to the 3.38% on the blue-chip index and grew faster than the payout from corporate America.

It is laughable that most of the so-called asset allocators suggest that 5 to 10% of our portfolio should be in real estate. The data suggests that if building long-term wealth is your goal, a greater portion of your wealth should be in real estate.

Let’s take a look at how to do that…

And check out this week’s best REIT to buy (for Premium subscribers only).

(A quick note: Today the Fed cut interest rates by 50 basis points, more than I expected. I’ll dig deeper into this next week, once the dust settles and we know a bit more about why they did that. But the short of it is that the Big Five REITs as well as the Premium Total Return portfolio will both benefit greatly from this cut.)

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Where We Are Today

Spend a few minutes thinking about the wealthiest people in your town. Oddly, no matter how they built their wealth, they own much real estate. In many cases, building, developing, selling, and owning real estate have been the source of most of their wealth.

Consider one of my favorite investors from history: Hetty Green was so disagreeable and miserly that she was called "The Witch of Wall Street." She may not have been well-liked, but she was an incredibly successful investor. In fact, around the turn of the 20th century, she was probably the richest woman in the world.

She learned the art and craft of investing from her father and perfected it after his death. When markets collapsed and fear dominated the landscape, she would buy real estate and railroad stocks at bargain prices. Keep in mind that at that time, railroads were the most important infrastructure in the United States.

When conditions were better, she would take all her accumulated dividends and rent and use them to make mortgages and buy railroad bonds to collect interest. Hetty Green could be said to be one of the first investors to use the Real Income Report Strategy. She accumulated real estate and infrastructure assets when they were available at bargain prices. She also collected high-income rates from securities and loans secured by real estate and infrastructure.

This strategy made her rich. When times were bad, this strategy kept her rich. She focused on the creditworthiness of what she bought and the valuation she paid to own the assets. When markets and the economy reached euphoria levels, she would sell off overpriced assets at massive profits. This focus meant that she never got caught on the wrong side of a bubble and was always in a position to make volatility her friend and not a mortal enemy, as with most investors.

What You Can Do About It

Stop thinking of it as “buying REITs” and think of Real Income investing as “building your own real estate and infrastructure empire.” Consider what you own when you buy into the Big Five REITs I’ve suggested as a core portfolio:

  1. You own an interest in 181 of the finest office buildings in the country. Unlike most office buildings currently, your offices are mostly full. You own the offices that everyone wants to work in. Your properties have the best locations and the finest amenities.

  2. You have an interest in warehouses and industrial facilities all over the world. All in, you have an ownership stake in 5,600 buildings with over 1.2 billion square feet of industrial and storage space. You are an owner of a considerable portion of the global supply chain.

  3. You own the data centers that are powering the next technological revolution. The future of artificial intelligence and high-speed computing will happen in buildings that you own. Your properties will play a huge role in almost every aspect of the technology revolution the world is experiencing.

  4. You will own 79,738 of the country's most desirable apartments. Your buildings will be well-established market leaders in Boston, New York, Washington, D.C., Seattle, San Francisco, and Southern California. Your management team will expand its ownership of Class A apartments in fast-growing markets like Atlanta, Austin, and Dallas. Almost all of your apartments are occupied, and the rent is paid on time.

  5. You own 215 of the best shopping malls in the country and a few dozen international properties, and the highest-quality retailers and vendors in the world are your tenants. Almost all your locations are full, and the rents are being paid as agreed.

Owning the Big Five helps you begin to build your real estate empire. Reinvesting your cash flows and using market volatility to add to your position or build up the names in the premium portfolio can help you consistently earn market-beating returns from high-quality real estate.

So stay rational, stay patient, and if you haven’t yet, take a look at my free special report: The Big Five REITs - And Why You Should Own Them.

But if you’re looking for even faster income and even higher returns, you’ll have to dig deeper for some undiscovered gems in the REIT space. That’s why I’ve created a Total Return Model Portfolio filled with REITs that boast solid fundamentals and are deeply undervalued. For full access to that portfolio, become a member of my Premium service now.

Stock of the Week

Today’s Stock of the Week is a leading experiential REIT, carving out a significant niche in gaming, hospitality, and entertainment properties across the US and Canada. It operates under a triple-net lease model so that it benefits from stable, predictable cash flows while minimizing its operational responsibilities and exposure to risk.

Let’s take a look…

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