Lots of people want to invest in real estate. After all, owning investment properties can provide welcome income. But being a landlord can be tricky, as you'll have to deal with tenants, some of whom may not pay their rent on time or at all, and who might damage your property. You can't easily liquidate real estate, either, if you need some cash or just want to change direction.
Meanwhile, over long periods, real estate has not been nearly as effective a wealth builder as the overall stock market. While the stock market's long-term annual average return is close to 10%, real estate lags that significantly. According to the Home Price Index from the Federal Housing Finance Agency, monthly house prices averaged only 4.4% annual growth between 1991 and 2023.
So consider this real estate investing strategy instead: Opt for real estate investment trusts (REITs), which are companies that buy and lease out lots of properties, often focusing on particular niches such as apartments, industrial buildings, medical centers, retail outlets, storage facilities, and so on. They trade like regular stocks and are required to pay out at least 90% of their earnings as dividends, so they often sport attractive yields -- generating income. They're a fine alternative to owning actual investment properties.
Here are three REITs to consider:
1. American Tower
American Tower (AMT 1.09%), with a recent market value near $85 billion, focuses on owning, operating, and developing wireless and broadcast communications real estate -- with a portfolio of properties that recently sported almost 226,000 communications sites, some 81% of which are located outside the U.S., and about 19% within it.
American Tower's stock was recently down about 35% from its 52-week high -- which has pushed its dividend yield up to 3.4%. And that payout has grown by an annual average of 16% over the past five years.
So why the decline? Well, the company is facing some headwinds. For one thing, rising interest rates mean higher borrowing costs. And a somewhat uncertain economic environment can have some customers reining in their spending. Still, demand for more wireless capabilities in the U.S. and beyond seems indisputable, and the company is expanding into data centers, too.
At its currently depressed price, there's a lot to like about American Tower.
2. Realty Income
Realty Income (O 0.11%), with a recent market value near $40 billion and a hefty dividend yield of 5.2%, is a giant in retail, renting out more than 12,400 properties globally. It's a dividend powerhouse, too, paying monthly (as opposed to quarterly, which is more typical for dividend payers) for 635 consecutive months -- that's more than 52 years!
This REIT has also seen its shares slide; they were recently off about 21% from their 52-week high. Its long-term appeal remains strong, though, because it can keep acquiring more properties (even more effectively when interest rates eventually drop) and it can keep raising its rents. The well-managed company isn't likely to grow like gangbusters, but it is likely to grow over time, while delivering fairly dependable -- and substantial -- income. Its first-quarter report featured revenue up 17% and an occupancy rate of 99%.
Realty Income is attractively priced these days, too, with both price-to-sales and price-to-earnings (P/E) ratios below their five-year averages.
3. W. P. Carey
W. P. Carey (WPC 0.16%) is another real estate stalwart, at 50 years old -- with a recent market value topping $14 billion and a generous dividend recently yielding 6.3%. It boasts close to 1,500 properties with a focus on industrial, warehouse, and retail varieties. The company notes that its long-term net leases in which tenants shoulder most operating costs feature built-in rent escalators -- often linked to inflation. That means much of its income is quite dependable. It also owns 84 self-storage properties.
W. P. Carey is well managed, and it's working on growing even bigger. Shareholders can expect to be rewarded by dividend increases stemming not only from rent hikes, but also from acquisitions, as the company expands its footprint. In its first quarter, W. P. Carey posted revenue growth of nearly 23%, while collecting more than 99% of its contractually due rent.
These are three solid companies worth a closer look if you're in the market for income from real estate. Since they trade like stocks, you can buy or sell shares of them on any given trading day, without having your money tied up in actual buildings that can take a long time to buy or sell. You won't have to deal with tenants, either -- you'll just leave that to these companies' management teams. It's hard to beat long-term investments in stocks for building wealth.
