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The Soft Way to Own Hard Assets

Written by Jason Williams
Posted April 14, 2021

Last Friday, I wrote to you about the kinds of investments that do best in inflationary environments: hard assets.

These are things like real estate, manufacturing facilities, fleets of trucks, commodities, and precious metals. They’re tangible assets in that you can actually hold them in your hands.

But you don’t have to be able to hold them to profit from them. So today, I want to talk about the intangible ways to own tangible assets…

When Soft Is Really Hard

Intangible (or soft) assets are basically the opposite of hard assets. They’re intangible; you can’t really “hold” them like a bar of gold or a handful of dirt.

They’re things like stocks and bonds. Sure, you can hold the stock certificate in your hands, but there’s no actual functionality. You can’t use it for anything but to prove you own the stock.

So, naturally, you’d probably think that in order to own hard assets, you must be able to hold them in your hands and put them to use.

But you’d be wrong — partially wrong, at least…

You see, those stock certificates represent an ownership stake in a company. And some companies are very heavy on hard assets.

When you own a share of ExxonMobil, you own a share of all the oil rigs and refineries and pipelines and trucks and gas stations that company owns. Those are all hard assets and your stock is an intangible way for you to get a stake in them.

When you own Caterpillar stock, you also own a share of all that infrastructure the company has build over the years. You own a share of its fleets, a share of its leased products, and a share of its manufacturing facilities.

When you own a share of Freeport-McMoRan, you’ve got exposure to commodities like copper.

They may be intangible assets, but the assets they give you ownership of are very hard and will do very well in inflationary periods.

But there’s an even better way to get yourself exposure to hard assets without having to go out and buy a farm or a mine or a factory yourself…

It’s All in the Name

They’re called real estate investment trusts (or REITs). And they’re one of my favorite kinds of investments.

You see, these companies’ shares trade openly on the public markets just like Exxon, Caterpillar, and Freeport. But their structure is set up differently so they don’t have to pay federal taxes on their income.

It’s a pretty sweet deal, and you’d think every company on the planet would want a piece of that action. But there’s a stipulation they must meet to get that tax loophole.

Every REIT must pay out at least 90% of its pretax income as a distribution to its shareholders.

Let me say that again: Every REIT must pay out at least 90% of its pretax income to shareholders!

That’s huge when you’re making billions of dollars a year. Literally $0.90 from every $1.00 gets paid back to shareholders as income.

It’s a great way to make some extra cash to reinvest or to live off of in retirement. And right now, those REITs are hitting a sweet spot.

REITs Get Sweet

Interest rates are pretty low. And if you read my colleague Brit’s commentary on Monday, you know they’ve been trending down for a long time.

As interest rates drop, the expenses that go into owning things like real estate drop with them. And as the costs fall, the profits grow.

So if you were paying 2% interest to buy a property last year, but you’re paying 0% interest this year, you can accept a lower return on your investment and still make the same amount of money as you had before.

That’s called your capitalization rate, or cap rate for short. The cap rate is just the expected annual income of an investment versus the market value of that investment.

The annual income grows as the cost to finance a loan falls. And that brings the cap rate required to make money down with it.

But it has the opposite effect on prices of those assets. If you needed to make 4% on an investment last year, but now you don’t have to pay interest on your loan, you’ll happily accept a 2% return today.

And that property that you’d have paid $1 billion for last year to get that 4% cap rate? Well, you can pay $2 billion for it now and still make the same amount in the long run.

The cap rate dropping from 4% to 2% makes that property twice as valuable. And it means investors will be willing to shell out a lot more upfront to secure those future cash flows.

That’s a perfect situation for REITs. Their main assets are real estate. Some own cell towers while others have massive fiber-optic cable networks.

Side note: This REIT owns the most extensive fiber network in the U.S. and is poised for massive profits as its network becomes the backbone for 5G wireless tech in this country.

Some REITs own farmland. Some own apartment buildings or other residential real estate. Some are focused on distribution centers and warehouses. And others dedicate all their space to digital real estate.

Side note: An investment in this REIT is like getting a distribution of cash every time Amazon ships an item to a customer.

The one thing nearly all of them have in common is that they pay steady income to shareholders and they own hard assets that will appreciate thanks to inflation.

Rates vs. REITs

And right now, many of them are yielding well above their historical norm. They got hit with the rest of the market last spring, but they aren’t sexy tech stocks so they haven’t recovered as fast.

And you know how yields work with prices thanks to what’s been going on in the bond market. As those prices fall, the yields rise.

Well, it also works in reverse: As prices rise, yields fall. And that’s going to start happening in the REIT space very soon. In fact, it’s already happening.

But there’s still time to lock in double-digit yields BEFORE these stocks go on double-digit rallies.

If you do that, not only will you be making double-digits on those dividend payments, but you’ll also be looking at a double-, maybe even triple-digit gain on those soft versions of hard assets.

So I recommend you take another look at the real estate market before low yields drive prices up.

If I’m right, you’ll lock in massive dividend payments and get yourself set up for massive stock rallies, too.

Get by With a Little Help From Your Friends

And if you want a helping hand, you’ve got to give The Wealth Advisory a trial run. It’s an investment advisory service I co-author with Brit Ryle. And it’s very focused on those income payments.

In fact, we’ve currently got 15 investments in our model portfolio that are spinning off cash in the form of dividends and distributions. Many of those are REITs. And all of them are up at least double digits since we recommended them.

You can learn more about a few of our opportunities here and here.

And if you decide to join us and the tens of thousands of other happy (and successful) investors, you’ll have access to everything we’ve produced in the past and everything we’ll reveal in the future.

Plus, you’ll have access to Brit and me and the decades of combined experience we bring to the table.

So give those hard assets another look and give Brit and me a shot at helping guide you down the path to financial independence.

I hope to see your name on my list when I send out my next investment.

To your wealth,

jason-williams-signature-transparent

Jason Williams

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After graduating Cum Laude in finance and economics, Jason designed and analyzed complex projects for the U.S. Army. He made the jump to the private sector as an investment banking analyst at Morgan Stanley, where he eventually led his own team responsible for billions of dollars in daily trading. Jason left Wall Street to found his own investment office and now shares the strategies he used and the network he built with you. Jason is the founder of Main Street Ventures, a pre-IPO investment newsletter, and co-authors The Wealth Advisory income stock newsletter. He also contributes regularly to Wealth Daily. To learn more about Jason, click here.

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