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Passive Income (Without the Properties!) by Investing in REITs

The BiggerPockets Podcast
46 min read
Passive Income (Without the Properties!) by Investing in REITs

REITs have long been a passive income generator for many who don’t want to deal with the trash, toilets, and tenants that come with rental property investing. No 2 AM phone calls, no listings, no showings, and no sales. With REITs (real estate investment trusts) you simply click a button, buy a share in the company, and wait for your passive income (dividends) to flow into your account. Seems pretty sweet right? Matt Argersinger from The Motley Fool agrees.

Matt isn’t your typical stock investor. He’s owned multiple rental properties and has even house hacked and put in some serious sweat equity. He knows that leverage and forced appreciation are huge wealth builders in the realm of real estate, but still chooses to invest in REITs instead of rentals. Why? Matt is focused more on creating passive income—as in TRULY passive income—no tenant surprises or maintenance calls to make. Matt wants to research, invest, and let his net worth grow, all while still receiving real estate-generated cash flow.

Maybe you’re skeptical. How can passive investing be so easy? If you’re brand new to REITs, Matt does a phenomenal job at explaining what they are, how they work, which types to buy, and what you can do to get started investing today. Regardless of your knowledge of the stock market, if you like income-producing real estate, this episode is for you.

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Listen to the Podcast Here

Read the Transcript Here

David:
This is the BiggerPockets podcast show 639.

Matt:
REITs are one of the ultimate parts of the stock market where historical performance is a good indicator of future results, even though, of course, we were trained to believe that that could never be the case, but real estate in general is such a steady business. If you think about most REITs, most commercial REITs, they’ve got leases that they’ve signed with tenants that run not your typical rental lease, which is six months, a year, or maybe two years, right? In the commercial world, lease is run five years, seven years, 10 years, even 15 years.

David:
What’s up, everyone? This is David Greene, your host of the BiggerPockets Real Estate podcast. Joining me today is the man himself, Henry Washington, as we interview the Motley Fool’s Matt Argersinger. We talk macroeconomics. We talk real estate investment trusts. We talk stock trading, and we talk how to make it all work together. Henry, first off, how are you? Second off, what were your favorite parts of today’s show?

Henry:
I am doing very well. Thank you for asking, sir. Man, the show was great. Some of my favorite parts of the show where I just liked hearing the perspective of somebody who mainly invests in the stock market, but does own some traditional real estate. You can ask those questions that only somebody who does both would know, right? What’s your favorite strategy? Why one versus the other? What do you like about one versus the other? We have a little bit of a conversation about how he enjoys both of those investment vehicles.
We learn a lot about REITs, and what I really liked and what I really enjoyed was being able to hear how to start not just understanding REITs, but how to start researching them for yourself, and what key metrics to look for when you’re researching them so that if this is something you want to get into, you have a starting point for understanding these things and how to research and understand what’s the best one for you.

David:
This is not a typical Seeing Greene episode. We’re not taking questions from different BiggerPockets members. We’re actually diving deep into a spinoff of what we typically get into. I think a REIT is if a real estate investor and a stock investor had a baby, this is what you’d end up with. It’s definitely a different alternative to invest in real estate, but without the time commitment, without the effort commitment, and getting your feet wet. I think that there’s a place in a lot of people’s portfolios for this.
Henry, you shared a little bit about how you’re venturing into some other investment vehicles, and this is something you’re considering. Is there anything you can share about how you’re venturing out of just traditional real estate investing into other stuff?

Henry:
Absolutely. For me, I am diversifying my investment portfolio. My baby, my bread and butter is always going to be real estate. I’m always going to have most of my net worth tied up in real estate, like physical real estate in some form or fashion, but trying to do as much research as I can about other investment platforms and investment vehicles, and so being able to just spend the last 45 minutes learning from a professional around what real estate investment trusts are, and how to research them and understand them has been super helpful.
So, as the market is shifting, and as we’re producing income from the real estate, I’m just trying to find what are some of the best strategies in order to help get an even higher return on that investment. I like the stock market for some of the same reasons that I like real estate. I mean, we talked a little bit about it. Dividends are phenomenal, right? We get into real estate. A lot of us got into real estate to create passive income. Well, a dividend from a stock is truly passive. You don’t have to do any work to get that paycheck every quarter or every year, depending on the payout schedule of that dividend.
So when you start buying some of these stocks that pay dividends, and you get that truly passive income, it really feels good. You get some of those same warm fuzzies from real estate, and so I really enjoyed this conversation.

David:
If you’re worried about not getting a Seeing Greene episode this week, don’t worry, in a few weeks, we’ll be back with fresh Seeing Greene episodes for you in the traditional style. We just wanted to make sure that we were able to bring Matt in, and get some access to all the knowledge that he’s got. This was a really fun interview, also very insightful. I learned quite a bit more than what I had known before we had it. I think you could say the same, Henry.
Before we bring in Matt, today’s quick tip is check me out on the Motley Fool Money podcast. Just search for David Greene Motley Fool, and you should be able to find an interview where Chris Hill interviews me. We talk macroeconomics. We talk real estate investing, and it’s cool because you get to hear someone who’s not a real estate investor asking a bunch of questions that we hear all the time. You might just find out that you know more about real estate investing than you thought when you get around other people who don’t know it as well.
Check that out, and then let me know in the YouTube comments what you think about how I did. Henry, any last words before we bring in Matt?

Henry:
Yeah, man. Just get ready for some great information. Turn your brain onto the idea of the stock market. I know a lot of real estate Truists are just like, “Yes, real estate, I get the best returns. There are so many other ways to make money,” but try to go into this episode with an open mind, and maybe you’ll learn something that peaks your interest, and you start investing in something that in 10 years you’ll look back and be glad you did.

David:
All right. Let’s bring in Matt. Matt Argersinger, welcome to the BiggerPockets Real Estate podcast.

Matt:
Hey, happy to be here.

David:
I am glad that you’re here. So for those that aren’t familiar with your company and yourself, would you mind giving us a little background on yourself?

Matt:
Sure. Wow. I’m almost embarrassed to say this, but I joined the Motley Fool about 15 years ago, which makes me in full years a dinosaur at the company. I’ve spent most of the 15 years working on the investing side of the company on our various investing services, and spent a lot of time with David Gardner on a lot of his services, and spent some time with him on his podcast and things like that. But for the most part, I’ve been a stock market investor, a real estate investor, and those are my areas of focus at the company, and spent some time on Motley Fool Money podcast as well with Chris Hill on occasion. Love talking to him and talking about investment ideas.
That’s the quick background. I live in Washington D.C. with my wife and a three-year-old son who’s growing way too fast.

David:
I was just on the Motley Fool podcast being interviewed by Chris Hill. I don’t know what show number it is, but if you guys Google David Greene Motley Fool, you should be able to find that episode. We talked about macroeconomics. We talked about trends to look for in real estate. He’s a very smart gentleman. I’m sure that you are too. Also, how old were you when you started at Motley Fool? You look like you could not have worked there 15 years.

Matt:
Oh, well, I was a few years out of school. I’m maybe… Well, I’ll take that as a compliment.

David:
You were that like Doogie Howser. You look like you were 13 years old at a corporate job.

Matt:
No, I’ve just got this… The Zoom or the camera sometimes enhances your image. I just put that to max, so it makes me look 10 years younger.

David:
That is… I came from a background in law enforcement. That was our crew to solving every crime, as you just say, enhance, enhance, and then the camera footage becomes better and better. I would highly recommend anyone having any difficulty in life, the answer is just enhance.

Matt:
Enhance.

David:
All right. How about your own investing portfolio? Can you tell us a little bit about what it looks like, and what you’re interested in?

Matt:
Sure. Well, in addition to being a dinosaur at the Motley Fool, my portfolio tends to be a lot more, I’d say, conservative maybe than the average Motley Fool analyst. In my portfolio, you’ll find a lot of dividend companies. You’ll find a lot of real estate investment trusts, REITs. I like the companies that are profitable, good asset quality, predictable cash flows to the extent that they can pay out dividends, and buy back shares. Not to say I don’t have some companies like Amazon or Alphabet or others that are on the faster growth end of the thing, but that tends to be my focus.
Up to 20%, 25% of my portfolio tends to be in REITs. It’s just because I like that. I like the real estate sector. The historical performance of REITs has been incredible. You invest in an area of the market that not only delivers you great income, but also is much less volatile than the overall market. I tend to lean heavily into that. I like to say I’m, well, a relatively young guy running an old man’s portfolio.

David:
Not bad at all. So for those that are listening that aren’t familiar with what a REIT is, would you mind breaking that down?

Matt:
Sure. Real estate investment trust, they’ve been around for a while. I think Congress commissioned them in the 1960s, early 1960s. The way to think of them is a mutual fund of real estate. They trade in the public markets. You can buy and sell them in your brokerage account. But generally, what you’re buying with a REIT is a company that owns and operates probably a dozen, few dozen or maybe hundreds of properties. You can invest, for example, in an apartment REIT that owns apartment buildings. You can invest in an office REIT.
Wouldn’t recommend that these days, but that owns lots of office buildings. You can invest in hotel REITs, self-storage REITs. There’s just… If you think about real estate as an asset class, you can really invest in many of the different categories underneath that huge sector to include data centers and cell phone towers and various alternative categories of real estate. The brilliance of… I mentioned the historical returns. So if you go back to the early ’70s, so roughly 50 years since the National Association of REITs has been tracking REITs, they’ve delivered about a 13% average annual return, which I think might surprise a lot of people.
That’s about a percentage point higher than the overall stock market measured by the S&P 500 over that same timeframe. It might not seem like a lot, but 1% per year over 50 odd years can really add up in your portfolio. Not only do you get an asset class that’s relatively less risky with more predictable cash flows, high really asset based that pays out generous dividends. You get really outperformance on a total return basis. I love the asset class a lot. I wish more investors would check out REITs. I’ve made them a pretty big part of my portfolio.

David:
How would you describe the difference between a REIT and maybe a syndication where people are pulling their money together to buy a single?

Matt:
Sure. Well, they’re actually similar in a lot of ways, but with a REIT, if you’re looking at a publicly-traded REIT, again, you’re looking at a fairly large enterprise company that’s probably got dozens, again, if not hundreds of properties. With a syndicated pool, or maybe what’s popularly called crowdfunded real estate these days, you’re looking at probably a single asset, private run by a sponsor or an operator that you’re investing alongside with. That can be compelling too. Generally, those are only reserved for… Most of those deals are reserved for accredited investors, and so as a…
Most investors in the market don’t have access to those, but they do have access to REITs of course. I like that asset class as well. It’s something that’s taken off, I guess, over the last decade with the JOBS Act and the various acts that have come out of that. It’s become an interesting way for an investor to get exposure to single asset deals, which I like. You can use a crowdfunding platform, for example, to invest in an office building in Chicago, or an apartment building in Los Angeles, even though you might be on the east coast.
That wasn’t really possible as a real estate investor just 15 years ago. You had to have the right connections. You had to have a lot of money. Nowadays with crowdfunding and syndicated investments, you can invest in those right away. I think if you’re a credited investor, and you have some means, you have to realize that the investment minimums on those can be high like 25,000, 50,000, maybe even $100,000. You got to have some cash, but they can be certainly good deals.

David:
That’s a great description there. I’m curious in your own personal situation. I know you have a couple rental properties, I believe, in the east coast. Why move more of your capital towards publicly-traded REITs as opposed to just getting more rental properties yourself?

Matt:
That’s a great question. Well, I think that comes down to how badly do you want to be a landlord, and to deal with all the issues that come along with that. So if I look back at my own experience, my wife and I, we bought a rowhouse in Washington D.C. shortly after we got married. One of the reasons we did that is because your typical rowhouse in D.C. is actually a duplex. It comes with what they’re called English basement apartments. It’s unique to D.C. and some other cities. You essentially live in the top, or live in the bottom if you want, and you can rent out one of the units.
We couldn’t afford to live in the Capitol Hill neighborhood of D.C. at the time, but we found a way to do it by essentially buying this property, and hacking it up where they… The young people call it these days you’re house hacking. We didn’t know we were doing that at the time. We just bought a duplex, and renting out the other side. It’s a funny story. But one day, my wife happened to be reading an article in the New York Times, I think. This is going back to 2009, and there was an article about a company called Air, Bed, and Breakfast, which of course now we know as Airbnb.
But at the time, I think people called it Air, Bed, and Breakfast. She said, “Wow. instead of doing a full-time rental with our rental unit, we could try this Airbnb thing.” At the time, I think we were one of three units in all of Capitol Hill, in the Capitol neighborhood of D.C. that was doing Airbnb. It was crazy. We listed it, and I think it was like $50 a night. It was really cheap at the time. We booked 100 days in a week. We were like, “This is unbeliev… It’s mind blowing.” Nowadays, if I look at Capitol Hill though, there’s probably, I’m not going to joke, 500 Airbnbs in the neighborhood of this house.
Anyway, so that was our big first step into like, “Wow. Real estate’s a thing.” This was a house we wanted to live in, and just help pay our mortgage. But now, it’s like, “Well, this is interesting to us,” so we made two additional investments later on, bought two more properties, very similar with additional units, did the same thing. Now, we were our own landlords. We were our own property managers. That can be really tough, especially nowadays if I think if I have a kid, and we live outside of D.C. The 2:00 phone call about a toilet not working, or the heat’s gone off, or the AC’s gone off, that has happened multiple times throughout our life is not a joke.
If you’re not a person who wants to deal with those kind of issues, REITs or these private deals are fantastic. Just invest in the equity. Don’t deal with all the headaches.

Henry:
What’s funny is you’ve got this stock portfolio, and then the conservative real estate portfolio as you call it. I would say I’m the exact opposite. I have a healthy real estate portfolio and a very conservative stock portfolio, but it’s super cool to be chit-chatting with you. Because as I was doing my research to ramp up on starting to get into investing in the stock market, investing in some REITs, when I first got started, I read a lot of Motley Fool articles. This is super cool, full sucker stuff for me.
Tell me a little bit about… With you being invested in REITs and other performing assets in the stock market, and having actual physical real estate, there are some other ancillary benefits to real estate. Do you recommend people diversify like you have across both platforms, because you get some of these other benefits from a tax perspective, or you get leverage and appreciation and that kind of a thing, or do you just wish you were all in one, and not the other, now that you’ve seen both?

Matt:
That’s a great question. I think as I’ve gotten older, and your time gets mortified, especially with family, I’m probably in a situation now where I would’ve loved to have sold all our physical real estate properties at the height of this recent market. Missed that badly, of course. But no, I love the question, because there are certainly advantages and disadvantages of both. As you mentioned, with the direct real estate ownership, you actually own the properties yourselves. You’ve got the leverage working for you, so you’ve got…
Assuming you put 20% down or whatever your equity is, you’re generally getting five to one leverage. You can’t get five to one leverage in the stock market, as we know, love to. You get that leverage, but then you also get, of course, the tax benefits, which means you can write off depreciation, which is a big expense. You can write off your operating costs. The real awesome advantage of physical real estate is that generally, they’re run at a loss, right? Anyone who owns real estate probably knows this, but you don’t really make too much money.
You make good cash flow though. But in terms of taxes, you’re almost breaking even in a lot of cases, because when you add in your mortgage costs, your other operating costs, and then you add a depreciation, which is not a… It’s not a cash expense, but it’s a real expense. Generally, in terms of Uncle Sam, you’re pretty much netting zero, even though you’re netting, hopefully, some cash flow, actual cash flow. Then like you said, you also can… If you’re in a market… I’ve been in D.C. for the last 10 years or other markets.
My gosh, if you were investing in Austin, Texas the last 10 years, or name your awesome Sunbelt market like Miami, Tampa, you’ve seen real estate just appreciate double digits a year for years in this incredible bull market we’ve had. On a leverage position, you’re growing the asset value as well. You’re getting cash flow, so direct ownership is awesome if you’re willing to put up with the headaches. I just think as I do get a little older, I’m thinking to myself, “How nice would it be not to have to deal with tenants anymore, not have to file complicated taxes, and literally just have equity and a bunch of different real estate assets, and securities, and collect dividends and distributions, and call it a day?”
I like the fact that we’re diversified, but I certainly… My thinking is definitely evolving as I get older.

Henry:
Yeah, man. It’s always interesting when I talk to people who are more invested in the stock market versus real estate. I always like to try to learn as much as I can about why they’re pouring their money more into one than the other, because everybody’s got that FOMO like, “What should I be looking at coming forward?”

David:
I have a thought on that that I don’t think gets shared enough in our space, because I know there’s some die hard real estate investors that are hearing this, and they’re going, “That 13% return sounds okay, but I got 19%. I’m sticking with what I have.” It was… It hit me like… Maybe everyone else has already thought about this, but it just hit me how few people are thinking this way, that your ROI with traditional real estate investments, long-term rental, short-term rentals, anything is it includes more than just your money.
Your ROI measures money in versus money out. But with real estate investing, there is time. There is risk. There is elbow grease. There is frustration. There is failure. Those of us that love it just assume, “Of course, this is a part of the game,” but there’s other people that don’t love this, that aren’t in love with that. There’s people that make very good money in a medical sales job, or they’re a doctor. They’re a lawyer. They have a great opportunity to earn money, but it requires a lot of their focus. They actually lose money when they invest in real estate, because the return they’re getting takes so much of their time that they’re taking it away from a place they could make more money.
It’s something I realized that a lot of real estate investors don’t understand why people invest in stocks, or in REITs, or in syndications, but it’s because you’re getting a pure ROI. It’s not your time also going into it. Matt, is that a part of your journey that you had a bit of an epiphany with that same concept?

Matt:
It’s a fantastic point. I mean, there’s a lot of things that go into direct real estate ownership that you just don’t measure. Like you said, I mean, you don’t measure the time, even though you can try to, but you don’t really… You don’t measure the time, sometimes the stress, those little trips that you have to take to buy something really quick for the tenant or to fix something. It’s good and bad in a lot of ways. The return on time is not great, and you’re not really measuring the full return that you’re getting from the commitment you’re putting into an actual real estate property, but then you also get…
There’s that cliche sweat equity, which does come into play. I mean, I think of the fact that my… Gosh, YouTube has been a godsend over the last 15 years, but doing things like replacing a kitchen, doing drywall work, learning how to paint fast. I mean, there’s a lot of things you learn, and avoid having to pay a contractor some really expensive amount of money, or, especially these days, trying to find a contractor is just a nightmare. What’s wonderful is real estate, I feel like it’s an entryway point, right? For people who don’t have…
I’m not an engineer. I’m certainly not a doctor. I’m not a scientist. I’m not a software coder. Gosh, I wish I’d done that, but… Real estate was a way for me to enter an asset class, even as a person who didn’t know anything. You can get in there. You can buy properties. You can learn how to do things. There’s some pain involved, but you can make good money if you’re willing to put in the hours, and learn how to do things effectively, and be your own property manager.
It’s not for everyone. Trust me, I love the idea of just not having to deal with hassles, and having a stock portfolio or private equity portfolio that just doesn’t require any of my time. I’m a complete passive investor, but it can be a wonderful way, I think, if you’re someone who just has a lot of maybe soft skills, but you want to get into an investment where you can really lever up and get some nice exposure to do real estate.

Henry:
Let’s talk about a little bit of the elephant in the room, right? 2021, everybody was a genius in real estate and in the stock market, right? Everybody was making money. It was a big party. Now, things are a little different, right? You’ve got the stock markets down. Real estate is changing, definitely changing. The environment is changing. So as someone who has money in both places, how are you maybe changing directions, or are you not changing directions, and why?
I’m like, “How are you preparing for this economic climate as it’s fastly evolving around us?”

Matt:
Great question. Definitely a different world than we were in a year ago. I think, it goes back to, I think, what David asked about earlier, which was the comparing the private syndications to REITs. What’s amazing about, I think, the stock market is that prices and valuations get reflected pretty quickly. A lot of the great REITs that I follow, many that I own, I’ve already been beaten down 30%, 40% to the point where some of their valuations look the best that they’ve looked at in seven, eight, nine years. I’m excited about that.
What I’m seeing on the private side, though, is that you’ve got a lot of stubborn operators who aren’t willing to mark down the value of their real estate, or they’re not willing to underwrite lower exit values for their properties. That happens in private equity, right? It’s not exposed. It’s not repriced every day, just like real estate. Real real estate isn’t repriced every day. Thank goodness, but we know the times are tough. We know interest rates have gone up. We know there’s inflation fears, and so the value of those assets has certainly come down.
You’re already seeing that in a lot of markets, right? What I love about REITs, public REITs is that a lot of those valuations have come down so much though. I’m seeing a ton of opportunity that I didn’t see a year ago. For example, one of my favorite REITs I’m looking at is one called Alexandria Real Estate Equities, ticker ARE. It’s the leading life sciences REITs. Some of their biggest tenants are big drug developers, biotech companies, hospital systems. A year ago, they’re trading probably close to 30 times funds from operations, which is the equivalent PE for REITs, so 30 times, right?
Flash forward to today, they’re at 18 times FFO. That makes me pretty excited. I feel like I’m getting a pretty good value in them. That’s very typical of a lot of REITs right now. The dislocation has happened in the public markets. So if you’re a public market investor, you can take advantage of those. Not so much I think in the real estate side, where in the direct real estate side, where mortgage rates have risen, borrowing costs are a lot higher. It’s harder to get in, or on the private side where, I think, valuations have not adjusted as much.

David:
So as you’re considering investing into a REIT, let’s say someone hears this, and they’re like, “I like that passive income.” This wasn’t mentioned, but I do think that it’s worth considering that these are professional real estate investors that are analyzing these deals at a very high level, that do it all the time, that can put on their little nerd goggles, and look at something that your mom and pop investor, or your short-term rental investor, they just don’t have angles to see. If you’re looking for a safer investment, obviously, there’s nothing guaranteed, but in many ways, a REIT could be a better option than just wandering out and trying it on your own.
What are some things that you’re looking for within an individual REIT?

Matt:
Great question. I think REITs are one of the ultimate parts of the stock market where historical performance is a good indicator of future results, even though, of course, we were trained to believe that that could never be the case, but real estate in general is such a steady business. If you think about most REITs, most commercial REITs, they’ve got leases that they’ve signed with tenants that run not your typical rental lease, which is six months, a year, or maybe two years, right? In the commercial world, leases run five years, seven years, 10 years, even 15 years.
So imagine your REIT, you own property, and you’ve got a tenant there that’s signed a lease for the next 10 years. You have amazing cash flow visibility into that. Also, a great thing is that those leases often come with price escalators, annual price escalators from 3%. Some are linked to CPIs, so they’re even inflation linked. You have an asset that’s incredibly predictable in terms of cash flow. One of the things I look at with REIT is how has this REIT performed historically? Has it delivered a nice total return to investors?
The other thing you can look at is the management team behind the REIT. Unlike a lot of the other sectors of the economy, in REITs, it’s not atypical to find a management team that’s been there for 20, 25 years, or a CEO that’s been with the company since he left college, and is still with the company. If you have a management team in place that’s delivered great returns to shareholders, they’re still involved in the business, because it’s not a business that really gets disrupted like your typical technology stock or software company.
If you have a REIT with a great 10, 15, 20-year track record, it’s highly likely it’s probably going to have a pretty good track record going forward. Then with REITs, one attractive things of course is the dividend. That’s why, I think, most investors think of REITs is because they pay nice dividends, but you need to take a look at the payout ratio, and understand what kind of earnings power the REIT has, where it’s fund from operations, which is the cash flow of the REIT.
Make sure that payout ratio is say… Below 70% is a good threshold. So, if you’ve got a REIT with a good track record, good management team, payout ratio is reasonable, good chance. That’s a good investment opportunity right there.

David:
Well, something you were talking about that I was thinking was a lot of the people that are doing really well, let’s say the short-term rental space. Let’s take Scottsdale Arizona or the Smokey Mountains in Tennessee, really popular areas. If you bought your place in 2019, 2020, you probably paid half of what those are now. Your interest rate was half of what it is now. Those people are crushing it. They’re doing amazing. If you’re trying to get into that market today, it is incredibly difficult, and you’re not going to get the same return.
So with the REIT, part of what’s cool, it would be like buying into someone else’s Scottsdale short-term rental at 2018 or 2019 numbers, right? A lot of those deals that they’ve bought over the years, you are now jumping into that incredible opportunity and the cash flows that they’re receiving, versus trying to get into the market that’s more difficult now. Any thoughts on that?

Matt:
I think that’s a great point. I mean, what your question reminded me of there’s a REIT called Invitation Homes, and the tickers INVH. They fo-

David:
Is that Blackstones?

Matt:
Well, originally, it was owned by Blackstone. It was founded by Blackstones, spun out several years ago. They specialized in single family rentals in a lot of hot markets. Their stock price is down, I want to say, 25% from its high. In a way, if I’m buying invitation homes today, I’m getting exposure to this massive single family rental market at probably, like you said, 2017, 2018 prices, where as an individual, if I go out and try to buy a house in one of those markets, good luck. It’s a lot more expensive and hard to do.

Henry:
Can you talk a little bit about… I don’t know if the right word is mindset, but let me frame it up for you. Then you’ll see where I’m going. As a traditional real estate investor, when we’re buying a property, we’re looking to get it at a good price, where we’re going to get some cash flow, and then hopefully we get some appreciation. But the goal typically for most buy and hold investors is to get in, and then we hold that thing for as long as possible, and reap the benefits for as long as possible. When we’re talking about REITs, how should somebody who may be traditionally looking at owning property who might be interested in now looking into some of these REITs, what’s the mindset you should have as you go into trying to buy into a REIT?
Because with stocks, you can try to buy low, sell high in a month, or you can try to hold it for the long term. You can buy because you like the dividend payouts, and you’re buying for cash flow. What’s that mindset you should have when you’re looking at a REIT versus traditional real estate?

Matt:
It’s hard to do, but if you could have the same mindset that you do with a traditional house or property, that’s the way to go, right? I look at my portfolio. There’s several REITs I’ve owned for over 10 years. That’s because, hey, I like the company. I like the assets. They pay me a nice dividend. That’s grown over time. Why would I sell, right? It’s tempting to go into the stock market, especially for those who haven’t been in the stock market to just go in, buy a bunch, maybe watch the REITs go up 10%, and you’re thinking, “Oh, I’m a genius. I’m going to sell right now, lock in that profit, and I’m good to go.”
The reason I like REITs, especially to have that sort of slower mindset, is because you are buying into something that’s paying you a dividend. By the way, if you can reinvest that dividend, you can grow your stake in that REIT over time, really tax efficiently, and even boost your dividends that way. One of the really underappreciated things about REITs is that because they’re forced to pay out 90% of their pre-tax income as dividends, that way they don’t pay federal taxes.
A lot of investors think that’s a disadvantage, because a REIT can’t retain earnings. It has to always issue new equity or issue debt because it needs to-

David:
I believe isn’t it like 90% of the earnings have to be reissued? Is that right?

Matt:
90% pre-tax has to be paid out as dividends. What I love about that though is it forces REIT managers to be really conscious about the capital they have at the company, and not to do anything silly with shareholder capital. That’s not the case for your typical company that you might have a CEO at a software company or e-commerce company. They’re getting cash. They’re making money, and they’re like, “Well, we’re going to start all these newfangled projects. We’re going to go buy this other company. We’re going to buy the competitor.”
Oftentimes, they end up wasting a lot of shareholder capital. Whereas with a REIT, I get the dividend income myself. I can make the best decision as an investor, what to do with the capital. On the other hand, the CEO of the REIT, the board of the REIT has to make the best decision as well, because they’re paying out, like I said, 90% of their pre-tax income. So in a way, REITs are the ultimate long-term hold investment. I think if you find a good one or two, buy, hold, reinvest the dividends, and you feel pretty good in a bunch of years.

Henry:
I love that, man. I was wanting you to reiterate that for people, because we have… Especially new stock market investors, we get into this idea of trading. The word trading in the stock market tend to be this synonymous thing. That’s absolutely not how you should look at it if you’re going to invest in something that you’re hoping produces a long-term return, especially now, right? I’ve had to just delete the apps, the broker apps off my phone. I don’t want to… I’m buying stocks for the long term, and so you get into this roller coaster of emotions.
It’s best to just have a strategy, whatever that strategy is, as long as it’s an educated strategy, and then you’ve got to force yourself to stick to it. I find it harder to force myself to stick to that strategy when it comes to investing in the stock market, investing in REITs than I do with my traditional real estate, and mostly because they’ve gamified this investing with the apps on your phone, and there’s the bright colors, and it’s super cool. I’ve got to just delete it, set it and forget it, and try not to pay attention to the news.

Matt:
I mean, I think real estate investors should have the best mindset, because you’re used to holding assets that aren’t repriced every day. You’re not trading any out of real estate, so of course.

David:
What’s your thoughts on that, Matt? That’s something I… My thoughts are a lot of people get into day trading. They get sucked into making money through real estate, because it feels good to the ego to be able to say, “This stock went up. This share went up. I did good today.” It gives you that feeling of progress that you did well, but overall to me, it’s bad for your wealth building, because you’re not focused on being productive. You’re looking at something your money already did.
Then when it goes poorly, it impacts you emotionally, and you feel like crap. Now, you don’t want to go work hard to get more money. Are you of the mindset that it’s better to find a way to make investing as boring as possible, and just let it do its thing, or do you think that there’s a place for the people that are micromanaging their individual portfolios?

Matt:
I don’t want to say… I don’t want to make investing in the stock markets sound boring. It can be fun. I mean, I think the most joy I have investing is just learning about a new company, learning about a new REIT, learning about a new industry. If I like it getting some skin in the game, I think that’s exciting. But where you should treat stock investing is watching paint dry, is generally just… That’s the approach you want to take with the stock market, and dividend paying companies and REITs allow you to do that, I think, unlike a lot of other stocks. Because talking about the gamification of it, I might feel good if the stock I own is up 10%, but to me, it’s almost better.
It’s like, “I love when I get the quarterly dividend check.” That’s my ego boost. I’m like, “Oh yeah. This company just wrote me a check.” By the way, sometimes, when they raise the dividend, I’m like, “Oh, I just got a pay raise. This company just gave me a pay raise.” It’s fun to see that cascade, and then the quarterly cash you’re getting from these stocks and REITs to go up over time. It might seem like watching paint dry, but it can be incredibly lucrative.

David:
I think that’s the key is when the check comes in, you can get your excitement from that, right? As a real estate investor, when the cash flow comes in, get excited. Don’t check the price of the house on Zillow three times a day. Did it go up? Did it go… Oh, it went down. This is horrible.

Henry:
My zestimate is crashing.

David:
I saw that.

Matt:
Why is Redfin 5% less than zestimate? Really?

David:
Yeah, and you’re emailing Redfin requesting a new appraisal on your house, because it’s not as high as Zillows is or something. I noticed this with a lot of the crypto investors. There’s some really sad stories of when it tanked recently. Suicides happening, people… horrific, horribly sad stories that people put their identity in their net worth through an asset class that is so volatile. They thought they were a real millionaire, because these assets went up to million. Then when they went down, they absolutely tanked.
I guess that’s what I’m getting at is if you let a rising asset price or your portfolio going up in value make you feel good, you are exposing yourself to the downside where it can also make you feel bad. If you can detach from the outcome, and just say, “Here’s the fundamentals. I’m going to continue to invest based on the research that I did.” I like what you said. Do a lot of research on the paint color. Then once you put it on, just let it dry. Just let it be dry.

Henry:
Watching paint dry can be fun. You get the… It looks different in different lights. You want to let it dry, and see if the color looks [crosstalk 00:38:30] going to look like.

David:
That’s your Arkansas show in there, brother.

Henry:
Oh, sorry. Sorry. Excuse me. We don’t have a lot to do here, so you go down to the Home Depot.

David:
It’s much slower pace over there. I remember when I visited Arkansas, they were really proud of the Bill Clinton library the fact that Derek Fisher was from there. One other thing, what was it? It was Dillard’s. It has their headquarters there. Everyone is very proud of those three things.

Henry:
Yes. We also have Walmart headquartered here, and so you all probably bought something from there recently, so you’re welcome.

David:
[crosstalk 00:38:58].

Matt:
No, I love the point, David, just because what a lot of investors don’t appreciate, especially newer investors, is the downside hurts a lot more than the upside, and various psychologists have written things. I think, Jason Zweig has written about this in the past, but it’s just… I think, losing money on a stock hurts three times as much as the euphoria from gaining 10% on the stock. I mean, especially in crypto, I mean, my goodness, I’m not a crypto investor. I’ve had fun staying poor the last few years, I guess, but it’s an incredibly volatile space.
Now, a lot of these DeFi projects and stuff, you’re layering on leverage to what is already an extremely volatile asset. That’s just… In my boring, old real estate world, you just can’t do that. But man, it can be treacherous.

David:
So when it comes to looking for specific information about REITs, do you have some favorite resources? Is the Motley Fool a good place to go? Is there other places that you recommend people look these up?

Matt:
Sure. If you go to fool.com, there’s a whole… We have real estate as a whole sector there. There’s free articles every day coming out, talking about various REITs or real estate companies. I think one of the best things you can do if you… Go to fool.com. I should do that first, I guess. But second, if you go to a lot of these company’s websites, I mean, just go to… Let’s use an example. Realty Income’s website, ticker O, it’s probably the most well known REIT out there. It’s one of the largest ones. You go to their website.
There’s a huge… There’s great investor relations segment of their website that has presentations that has transcripts from conference calls, and earnings press releases. It has so much great information, and so you can really get to know a company just based on its investing relations site. I think that’s get it right from the source. There’s always usually a section on the dividend history, and how long they paid the dividend, and what the current yield is, and things like that. That’s all. It’s all useful stuff. I don’t know if this is a good opportunity for me to do this or not, but I will go ahead and do it.
There’s a service I run at the Motley Fool called Real Estate Winners. I don’t love the name, so you guys can tell me what you think of the name. Let’s call it Real Estate Winners. When you’re trying to start a service, you have to do a trademark search, and figure out what names you can actually use. That was one name we could use, so we took it. Anyway, so with Real Estate Winners, it’s mostly a REIT-based investing service. It’s a subscription. What we do is we come out with one or two new REIT ideas a month along with a bunch of other content.
If you go to reits.fool.com right now, you can get a nice 20% or 25% discount off the annual subscription fee. We, of course, are publishing research all the time on that service and new ideas as well, so that’s a great… I have to get that plug in.

Henry:
Can you go a layer deeper for us and for those like-

Matt:
Sure.

Henry:
I mean, I love… No, even how simple it sounds like, “You want to know something about somebody. Go to their website.” I get that. But for those of us who are just… There’s just a lot of people who are intimidated by the stock market, and then doing this individual research, because the information’s not all in one consolidated place. So if I’m researching REITs, and I’m going to these websites, what are two to three key metrics I should be looking for at these websites?

Matt:
I think look at a… This is a little bit of an insider metric, but funds from operations, I’ve mentioned it a few times. It’s commonly known as FFO. That is basically the key earnings metric that’s for REITs, because like we talked about with real estate, depreciation’s a major expense. So when your average company reports earnings, it’s usually depreciations in there, but most companies don’t have a lot of depreciation because they’re not asset heavy. They’re not very capital intensive, but REITs, of course, own real estate, and real estate is an asset that you can depreciate over time.
FFO, it takes earnings. It takes out the depreciation adjusts for some other expenses. That gives you good underlying way of looking at a REIT. Has the FFO… What is the FFO per share? What is the price to FFO per share? Has the FFO grown over time? That tells you how REITs earnings are doing. I think looking at the balance sheet is good too. I think something like your debt to EBITDA, for example, with REITs, something that’s… Try to find a REIT that’s say trading for less than seven or eight times debt to EBIDA, gives you good indication that the balance sheet’s probably fine, and the REIT’s not going to run to any financial issues.
Then the other one I mentioned, I think, earlier is the payout ratio. Especially if you’re a dividend focused investor like I am, you want to make sure that the dividend is both sustainable and can be grown over time. If the dividend per share is, say, 70% of the FFO per share, generally, that dividend is going to be fine. If it’s above that number, if it’s above 70%, you have to be a little worried that the dividend could either be cut, or that it could had trouble growing that dividend over time.
I think those are three metrics, and they’re very easy to find. Again, if you go to a REIT’s investor relations website, usually, the earnings release will have those metrics at the very top, and you can figure it out.

David:
What are some things you’ve seen in a REIT where they’ve gone wrong, where it did not perform well, or maybe people might have lost money?

Matt:
Well, one of the big traps that I think investors will get into is there’s a whole class of REITs called mortgage REITs. There are REITs that aren’t backed by real property or assets. There are simply REITs that invest in securities, commercial-backed securities, mortgage securities, or they lend. They do a lot of lending to commercial real estate or residential mortgage borrowers. What’s attractive about those is the yields can be really high. For example, one REIT that comes to mind right now is Armour Residential REIT.
I think the ticker’s ARR, but if you look at that, it has a 16.5% yield on it right now. As a novice investor, I’m thinking to myself, “Whoa, 16.5% dividend yield, dude, sign me up.” But then you look at the long term total returns of that REIT, and they’re abysmal. That’s because essentially what’s happened is the mortgage REIT has not made as much income as it’s paid out in dividends, and so the value of the equity of the company is just steadily declined, and that’s very typical. One of the things I wanted to mention on the show was just that if you’re looking at REITs, pay attention to equity REITs, not mortgage REITs.
Mortgage REITs are a whole different class. They’re much more difficult to analyze. But if you look at equity REITs, you know that the REIT is backed by real estate, and it makes all of its income essentially from real estate operations like rents or other things. That’s one red flag to look for.

David:
Is the play on a mortgage REIT that over time, the amortization schedule starts to favor the company, because the majority of the payments are interests in the beginning? Is that why they’re set up that way?

Matt:
In a way, but a lot of those REITs, they’re not run that way, unfortunately. I like where you’re going there, but no, a lot of these REITs, unfortunately, they’re trading in and out of these securities all the time. They’re buying and selling them. They’re buying them and levering them up in a lot of cases, which is why they can pay out those incredible yields. I have yet to come across a mortgage REIT that I can confidently say, “Yes, this is a…” Even some of the best ones in the industry, that would be like… Starwood’s got a mortgage REIT. Blackstone’s got a couple mortgage REITs, I think.
I’m not going to bet against Starwood Property Trust or Blackstone, but again, even there, the REITs have underperformed over time versus your typical equity REIT. It’s a really different process. I just avoid this space altogether, because why play in a playground that’s tough when I can play in a sandbox that has great opportunities?

Henry:
Yeah, man, as somebody who, again, owns property, is invested in REITs, we talked a lot about how to research some of these REITs. So if I’m a real estate investor now looking to get into REITs, should I focus on looking at REITs that are involved in asset classes that I know, or should I just be looking for opportunity in a REIT like a REIT that’s trading lower than it traditionally has now, and jumping in? Because there’s SPG who’s more commercial, or there’s REITs that do with storage, and there’s REITs that do with single families, like you talked about earlier. So, give us some framework around that.

Matt:
Sure. I’d be very simple. I wouldn’t try to go in, and try to guess which REIT is trading at a low valuation, or which might be the best opportunity. I mean, one easy way to start, if you want, just to dip your toe in would be there’s the Vanguard Real Estate ETF, the ticker’s VNQ. I want to say it’s 95% REITs, and it has some other real estate holdings. That’s a great… It’s got a nice track record. It’s delivered about 9% return since inception over 16 years. The only disadvantage with an ETF generally, including VNQ, is that they’re market cap weighted.
So if you look at it, you’re buying into that what you think is a very diversified ETF, but you’re actually getting tons of exposure to data centers and cell phone tower REITs, which are they happen to be the largest REITs. You’re not getting a lot of diversification in other areas of the market, like you said, self storage or office or apartments. So, my approach when someone asks me like, “How do I start a REIT portfolio?” I would simply go out to the market, again, looking at REITs that have outperformed or delivered nice returns over time.
I would just get a basket in… I’d buy an apartment REIT. I’d buy a hospitality REIT. I’d buy a self-storage REIT, an industrial REIT, which there are many now, and buy a data center REIT as well. So if you got six or seven REITs that you can invest in, it’s a pretty good basket. You can feel confident that I’m not going to try it. I can’t really time when a particular REIT or a particular real estate sector’s going to do well, but at least I get good exposure broadly to the sector.
One area that I’m a little concerned about, two areas probably, but one mainly is office used to be one of the biggest parts of the real estate sector as you can imagine. It’s more than any other part of the market. I think since COVID, it’s the one with the biggest uncertainties, right? There’s just tens of millions of square feet of empty office space right now in a lot of places. That’s either got to be replaced, or it’s got to be sold at bargain prices. A lot of those office REITs are it’s going to be a struggle, I think, for a while.
That might be one area of the REIT market I would avoid. The other one might be traditional retail. Even though I think a lot of those are trading, it’s just really fire sale prices, so you might get some opportunity there.

David:
With your position on the overall macroeconomic situation that the country’s in, I guess I was thinking when you were talking about mortgage back REITs, I don’t know this, but my intuition would tell me that there’s so much capital that has been infused into the market, and these hedge funds like Blackstone have to find something to do with it that they’re like, “Hey, let’s go buy a bunch of paper, because we can get a higher return on it than what we can raise the money at.” Rates were very low. There was tons of capital.
I don’t know this for sure. There’s probably a lot more complication than I’m aware of, but in general, you make decisions that you wouldn’t normally make when there’s so much money, and you have to invest it somewhere. Do you think that some of those asset classes are at risk if we see quantitative tightening take place, or if we have a bit of a reset, and that’s why you’re more towards the equity-based REITs?

Matt:
No, it’s a very good point. I think, as we get higher interest rates and quantitative tightening, I think of course, unfortunately, you’re not going to see the Blackstones of the world go down, obviously, because, like you said, even today, they can borrow rates that are obscene. What you’re seeing, and what I’m already seeing is that you’re seeing a struggle at the smaller operator level. I look at a lot of private equity, real estate companies that are small. They own several properties, or they own maybe 500 apartment units, very small.
They’re the ones who are really taking the brunt, because they can’t borrow at the ridiculously low rates that some of the big institutions can. In a lot of cases, they’re getting high interest rate construction loans, or high interest rate mezzanine loans or bridge loans, trying to do a single development in a city or town, or they’re trying to recapitalize something. You’re going to see the stress there first as always with the smaller players, and you’re seeing that.
With the big REITs, the nice thing about REITs in general right now is REITs have some of the best balance sheets they’ve had in years. They learn their lesson from the GFC 12, 13 years ago when REITs were a lot more leveraged, so a lot of equity.

David:
[crosstalk 00:52:09] financial crisis.

Matt:
Correct. It’s great financial crisis. I shouldn’t assume that people know what that acronym means.

Henry:
I did that.

David:
I was actually shooting from the hip there. I had no idea.

Matt:
No, you nailed it. You nailed it. Great. They learned a lot of lessons back then, and I think they entered this latest crisis with COVID, and now this tightening cycle in much better shape. I’ve a little worry about some of the mostly larger REITs out there in the public space. The smaller private operators are the ones where there’s probably going to be stress.

David:
That makes a lot of sense actually. When it comes to investing strategies with… I mean, obviously, we’ve got a lot of money in circulation, but we also have really high rates. We have a lot of inflation with regular household goods. Things are changing in a pretty quick pace. What’s your thoughts on… Are you leaning more towards defensive-minded strategies where you’re trying to retain wealth you’ve built, or are there opportunities that you think where you can go be aggressive and increase your wealth?

Matt:
Great question. I tend to think steady Eddy through most cycles, right? I mean, don’t change your strategy too much based on what’s happening in the macroeconomy. But I mean, I would say certainly compared to last year, I feel like there were probably more opportunities in the market today, so I am feeling a little more aggressive. I am playing a little offense. I mean, I’m of the mind, how you guys land, but I’m on the mind that we’re probably in a situation where inflation is just about to peak. You’re already seeing a lot of commodity prices roll over.
You’re seeing rents start to flatten out. Housing prices are definitely probably going to come down. We’re probably at that… In terms of the inflation boogeyman, maybe that nightmare is coming to an end. Now, there’s other risks to the economy. We could have a recession. Energy prices are still high. There’s Ukraine, Russia. There’s still supply chains. I mean, there’s just a lot out there right now. But last fall, it was really difficult to find opportunities in the market, and even taking a five-year view, I felt pretty…
My opportunity set was empty. My opportunity set’s fairly good right now, especially if you’re taking the three, four, five-year time horizon. I’d say yeah. I mean, I’m never the guy who jumps in an, dives in and says, “This is the bottom end. We should be buy… I’m buying stocks hand over fist.” But certainly, we’re in the spaces. I look at dividend paying companies’ REITs. I’m seeing some pretty good opportunities.

Henry:
So with real estate, like physical real estate, one of the benefits that we enjoy is the ability to leverage your assets to either reinvest, and go, and buy other assets. Are there ways to do that with REITs specifically or with stocks? What are some other ancillary benefits other than just dividends that a REIT might provide you?

Matt:
Well, I mean, you certainly can’t get to leverage, of course, that you can with direct real estate ownership. With REITs, the benefit is you are… I mean, a, you’re getting a dividend that’s not double taxed, so you’re getting a dividend straight from the companies without them having paid federal income taxes on it. Now, the downside of course is that with REIT dividends, you’re usually paying at your marginal tax rate. It’s not the preferred capital gains rate. REIT dividends are generally not qualified, which is something that a lot of people don’t know.
That’s a downside and a good side though, because generally, you’re getting a higher dividend anyway, even though you’re paying a little bit higher taxes. But no, I think with… You have to remember with REITs, even though as an equity investor in REITs, you’re not getting a lot of those leverage/depreciation/tax advantages bonus, the operators of the real estate are, so the companies you’re investing in are getting those benefits, and it’s resulting in good cash flow and good earnings to you after all those benefits have factored in.

Henry:
That’s a perspective.

Matt:
Right. They’re taking leverage on their side, right? I mean, oftentimes with REITs, just like we take mortgages and houses, they’ve got loans outstanding on their properties, right? So, they are getting leverage returns. What’s fantastic about that is when a REIT signs a new lease, or that lease goes up, or that rent goes up 3%, they’re getting a leverage return on that, and getting that to you. Real estate’s great for turning small returns into great returns using leverage. Even with a REIT, you get it indirectly.

Henry:
Man, I like that perspective. I’ve always… Well, I shouldn’t say I’ve always. Well, since I’ve been building a stock portfolio, REITs have always been interesting to me. I’ve owned a few. I’ve since sold out of them, because I’ve changed my strategy. But what I do like is… I recently had a question from someone who was considering buying a property that essentially was going to break even, or even lose a little bit on the cash flow, but they were still willing to try to purchase this property in order to get in the game.
They were wondering, “Was that the right thing to do or the best strategy?” My thought there was that’s more somebody who probably has some cash on hand, because you’re going to be losing cash every month if you’re not getting cash flow. So, being able to leverage somebody else’s investment in your asset is probably a better use of the money than going ahead and buying something that’s going to be losing. We, at that point, were thinking about like, “Well, you can leverage somebody who has a fund that’s in the asset class.”
But now talking to you, it’s being able to put that into some sort of REIT as well is probably not a bad idea. All that to say, if you’re scared to get in the market, or if you can’t time the market just right right now to buy something, and you’re considering buying something that’s going to… You’re worried about it’s going to lose money. This could be a great option for you to try to research and understand, “Can you buy into a REIT that maybe isn’t trading as it used to?”
You’re taking advantage of somebody else who is a professional investor and who has bought at the right time, and you get a piece of that. I love that perspective.

Matt:
I totally agree with that. I mean, again, as long as you’re investing capital you don’t need right now, and you have a long enough time horizon, it’s a great place to put capital. I certainly… I wouldn’t be the one to rush out just to try to buy a property that was cashflow losing, just because I want to get one. It’s FOMO or whatever you want to say. I would say the REIT would win the battle for me there.

David:
All right. Well, this has been fantastic. I’m having a really good time here. We’re going to move on to the last segment of our show.

Speaker 4:
Famous four.

David:
This is going to be a modified one just for you, Matt. Henry and I will take turns firing questions off at you. Question number one, what is your favorite stock or equity-related book?

Matt:
I don’t know if it’s my absolute favorite, but since it’s appropriate to the topic, there’s a book called Investing in REITs. It’s one of those watching paint dry titles, but Investing in REITs by Ralph Block, who used to be a member of the Motley Fool. Unfortunately, he’s passed away several years ago, but it’s considered the primer on investing in REITs. It’s very easy to read. It’s an awesome…. It can really educate you about the market. I’ve read the book three times actually.
I have a book that’s my version is just scribbled with notes, because there’s just so many good insights that I always go back to. Investing in REITs would be the book.

Henry:
So with this question for real estate investors typically ask what’s your favorite investment book, and everybody always says Rich Dad Poor Dad. What’s the Rich Dad Poor Dad of the stock market world? Is it MONEY Master the Game? What’s that book?

Matt:
Oh gosh.

David:
The Intelligent Investor.

Matt:
I’ve never read it, so it could be. I’m sure you’ve gotten this one, but the Roger Lowenstein biography of Warren Buffet. I think it’s called The Making of An American Capitalist. It’s not so about the stock market. I mean, of course, it’s about Warren Buffet, so it’s about the stock market, but that is probably one of my favorite stock market books. I do love Rich Dad Poor Dad, though. I mean, just to go back to that one, I definitely read that one, and despite whatever Robert Kiyosaki’s become today, I think he wrote one of the best books out there for real estate investors.

Henry:
That’s a fact. All right. Sorry for the deviation. Question number two, what is your favorite focus stock podcast and or episode?

Matt:
Oh gosh. Chris Hill would kill me if I didn’t say Motley Fool Money, right? But okay, that’s boring. I think the Patrick O’Shaughnessy Colossus, family of podcasts, especially he’s investing the best podcast. I go to that pretty often. I think that’s probably my go-to.

Henry:
Awesome. What hobby or skillset do you need to be in the stock market?

Matt:
I think ultimately, you have to have two things. I think you have to be curious, curious about businesses, curious about finances, and then I think you need to have patience, which is so hard. I don’t have it all the time, but I think if you’re a patient person, that’s absolutely the key. You have to have the right emotional mindset to not care what happens in the stock market every day or every month or even every year. It’s just really just investing in great companies, holding them, and being very patient.

David:
All right. In your opinion, what sets apart successful investors from those who give up, fail, or never get started?

Matt:
I think my last answer to the other question might. I’d probably feel the same way. It comes down to emotional fortitude more than anything else. I think that’s what… It’s not who’s smarter, or, I think, who does better research or who’s more diligent. It really comes down to just your emotional fortitude.

Henry:
All right, so where can people find out more about you?

Matt:
All right. Well, you can go to fool.com. I’m also a regular guest on our Motley Fool Money podcast and radio show with Chris Hill. But if you’re interested in really taking a big step into real estate investing in the stock market, you can go to reits.fool.com, and that will give you subscription access to the service I work on called Real Estate Winners. I think there’s a discount there of 25% off the normal price. So if you’re really interested, go to reits.fool.com. Fool.com is just a great place to start, of course, with a whole bunch of free articles on real estate investing, so start there.

David:
Fantastic. Thank you very much for this, Matt. This has been insightful, even a little profound that I would say, and most importantly fun. I can tell that you are a full-time podcaster for a job because you did a great job. We appreciate you being here.

Matt:
Oh, thanks David. Thanks, Henry.

Henry:
Thank you very much.

Matt:
Great time.

David:
This is David Greene for Henry the fifth, wonder of Arkansas, Washington signing off.

 

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In This Episode We Cover:

  • What are REITs (real estate investment trusts) and how they work
  • Why buy REITs instead of rentals, plus the benefits of both
  • Cheap REITs that are becoming undervalued as the stock market crashes 
  • Mortgage vs. equity REITs and why higher cash flow could mean higher risk
  • The dangers of day trading and how long investors should hold onto REITs
  • The key metrics any investor needs to research before investing in a REIT
  • And So Much More!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.