Switching To a Different Investment Vehicle

[Don Konipol]

I think SFR, Small apartment buildings, and smaller type commercial properties are priced at the higher end of the spectrum right now, and have a larger probability of underperforming in the near to mid term. My entire investing premise has been to obtain returns of 12% annually (or more) with moderate risk, and occasionally willing to accept high risk for much higher returns (with a small part of my portfolio). I just can't find properties that meet my criteria.

This is doubly important to me since I just liquidated 3 investments and put approximately $1.5 million in cash in my pocket.  After studying various real estate and real estate related investments, I decided to invest a portion of my real estate equity portfolio in REITS (my portfolio of real estate notes I’m having little if any problem finding notes to replace the ones that pay off).   I’ve created a portfolio of 19 equity REITS.  The dividend yield is just under 7%; the average purchase is at a 32% discount from net asset value; and the average price paid is 10.3 X Funds From Operations.  Further, the 10 REITs average internally 35% debt.    I believe that over the long term this portfolio will achieve or even exceed  my goals.   As a bonus I am creating an easier portfolio to manage for my heirs. 

For those interested in considering REITs, here’s a great book I just read 

The REIT Advantage

Earn Higher Returns with Lower Risk than Private Real Estate

by JUSSI ASKOLA, CFA