REITs are an essential part of your portfolio...
Especially if you are retired, or like most baby boomers, soon-to-be retired.
What's a REIT?
Simple. REIT stands for Real Estate Investment Trust.
Owning a REIT gives you the benefits of being a landlord without having to go unclog some schmuck's toilet in the middle of the night.
And as you can tell by this REIT exchange-traded fund (VNQ), REITs are the place to be.
Let's face it; there is nothing quite so malingered as real estate these days.
Millions of people lost their homes over the past five years. Along with their breakfast nook and clutter room, they lost their life's savings, their ability to get a loan, and in many cases, their spouse.
You know them. Heck, you might be them. These are the people who spew rage and hatred in the comment section of every real estate article published on the Web...
But their loss can be your gain.
People need to live somewhere. That somewhere is usually an apartment owned by a corporation established as a REIT.
As you can see by the above chart, it's a booming industry. Rents are going up (5.6% for Q1 in Manhattan).
You stand to make a lot of money from REITs over the next few years.
But first, some background...
Congress Nails It
REITs were established by an act of Congress in 1960 so average investors could participate in large-scale commercial real estate projects. It's one of the few things Congress got right.
To qualify as a REIT, a company must have most of its assets and income tied to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
A company that qualifies as a REIT is permitted to deduct dividends paid to its shareholders from its corporate taxable income.
As a result, most REITs historically remit at least 100 percent of their taxable income to their shareholders and therefore owe no corporate tax.
Taxes are paid by shareholders on the dividends received and any capital gains. Most states honor this federal treatment, and also do not require REITs to pay state income tax.
Like other businesses — but unlike partnerships — a REIT cannot pass any tax losses through to its investors.
This means REITs pay high dividends to you every year.
Some REITs, such as Annaly Capital Management (NLY), pay as much as 14.13%. One Liberty Properties (OLP) has a 7.20% dividend yield.
In an age of 0.25% Treasury yields and stomach-lurching volatility in stocks, REITs are an obvious staple for a steady retirement portfolio.
You could go out and buy any old REIT you come across, but like all investments, there are risks... Not all REITs are created equal.
For example, in 2007 you wouldn't want to be investing in Florida condo REITs or Nevada strip malls. You might, however, consider a REIT that is currently building apartments or hardware stores in the Bakken boomtowns of North Dakota.
Picks and Shovels
And like North Dakota with its 2% unemployment and severe housing shortages, Canada is also booming.
Yesterday, Brian Hicks told you that Wal-Mart was going to spend $750 million adding 73 retail stores in Canada:
The company said more than half of the 73 projects will become supercenters, which offer an array of groceries as well as general merchandise.
They operate 333 stores in Canada, and plan to open up 42 more stores by the end of the year. The expansion will add 4.6 million square feet of retail space in Canada this year.
Expansion, Not Contraction
Just to be clear, there is a long list of companies like Best Buy, Sears, Gap, Room Store, B. Dalton, Liz Claiborne, Borders, and Quiznos that are closing stores...
But Wal-Mart is expanding in Canada.
They see opportunity — and are aggressively acting to take advantage of it.
That's why they are Wal-Mart and not Kmart.
They know that due to the oil and gas boom, there is a severe shortage of real estate in the Great White North.
But don't take my word for it...
From the Winnipeg Free Press:
Office vacancies are falling in Toronto and the rest of Canada amid economic growth led by the oil and natural-gas industries. Investor interest in commercial property is rising after the total return on real estate climbed almost 16 per cent last year, the most since 2006 and outpacing gains in the U.S., according to the REALpac/IPD Canada Annual Property Index.
Office property values probably will rise 20 per cent this year in Calgary and about 10 per cent in Toronto and Vancouver as low vacancies help landlords raise rents, according to estimates by CoStar Group's Boston-based Property and Portfolio Research Inc. Montreal values are expected to gain four percent.
Canadian real estate will be a top performer over the next year.
The obvious way to play it is to buy the correct REIT for you.
Brian Hicks is currently putting the final touches on an investment report that will solve your problems and give you what you crave: safe, stable, consistent, high-yield returns in one of the world's booming markets.
Look for it later in the week.
Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunity and Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor's page.