Real estate has long been a great way for investors to build wealth. That wealth can come both from the appreciating value of the property and from the income it generates along the way.
And you don't even have to own the property itself. The big world of real estate investing includes multiple ways to generate passive income, a flow of cash that comes your way in return for the money you put into something without your taking an active role in managing that asset.
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The secret sauce here is not so secret: investing in the owners of the real estate and leaving the rest to the managers and the market. There are multiple avenues for that, including real estate mutual funds, index funds, exchange-traded funds, and real estate investment trusts (REITs). Let's focus on one of the latter that has performed brilliantly for decades: W. P. Carey (WPC 0.24%).
A REIT for all reasons
W. P. Carey is a diversified, net-lease REIT, meaning it owns a mix of property types and the tenants pick up the tab for taxes, insurance, maintenance, and the like. Since going public, W. P. Carey has generated a total return of 1,710%, nearly four times the 445% the S&P 500 has returned over the same 24 years. This REIT has also grown its dividend for 26 straight years and is now yielding about 5.25% at the time of this writing.
Altogether, that's good for a compound annual growth rate of nearly 13%, and as the chart below shows, it would have grown a $10,000 stake to about $180,000 over those 24 years.
A REIT for all seasons
Real estate is considered a nice hedge against inflation because of the ability to raise rent, among other attributes, and a counter to other investments during down markets. W. P. Carey is a good example of why: Nearly 60% of its rent flow is from leases tied to the consumer price index.
The company's portfolio of 1,336 properties as of March 31 is also highly diversified, which tempers its performance compared with industrial REITs, for instance, during this boom time for that segment but also shielding it from the havoc seen in the office and retail sectors during the height of the pandemic. And that balanced approach should still serve this REIT well when favored sectors change, as they always do sooner or later.
Here's how diverse this operation is: Currently about 26% of W. P. Carey's revenue is from industrial properties, 24% is from warehouses, 19% is from office buildings, 18% is from retail, and the rest is from self-storage (4.9%) and "other" (8.8%). And then there's geographic diversification, with 63% of its business in the United States and 35% in Europe.
The market seems impressed. W. P. Carey has bled far less than most as this bear emerges, falling only about 2% in share price and staying level in total return so far in 2022.
Investing in more growth that should reward shareholders for years to come
The company is also aggressively growing its portfolio. After raising $2.4 billion in capital and investing $1.72 billion of it in 2021, both company records, W. P. Carey announced in February it was paying $2.7 billion in stock for Corporate Property Associates 18–Global, a non-traded REIT with full or partial ownership in about 120 assets, comprising a diverse group of self-storage, commercial real estate, and student housing properties.
That kind of growth on top of a record of market-beating performance for decades should help keep W. P. Carey atop any list of ways to brilliantly invest in real estate without directly owning a single property.
