The Most Important Lessons Can’t Be Found in Books

By Brad Thomas, Editor, Intelligent Income Daily

I want to start off today with an honest-to-God admission about my relationship with school growing up.

I was not the greatest student. I got kicked out of French 101 for saying “ferme ta gueule” to the teacher.

Translation: shut your mouth.

Of course, I did it to impress one of my buddies sitting next to me. But man, did it backfire.

My French teacher overheard me and was not amused. I ended up having to replace French class my first week of high school.

For all those who were/are like me, I will say this: Some people just learn better from doing. And I am definitely one of those people.

I was never a straight-A student. I didn’t make it into the Ivy Leagues. But hands-on experiential learning has allowed me to become a successful real estate developer and investor, largely due to a degree from the School of Hard Knocks.

Years later, it’s funny to think about that once-rowdy teenager as I’m asked to guest lecture at colleges I would never have been accepted to.

I’ve spoken to students at the University of North Carolina, Clemson University, Cornell University, and taught a course at New York University.

And this week, my friend and respected co-author of my latest book, Eva Steiner, asked me to give a lecture at Penn State University.

The topic, you may ask?

REITs (real estate investment trusts).

Eva invited me to come speak to her REIT class at the Penn State Smeal College of Business.

Real estate professor Eva Steiner and Brad Thomas at Penn State University

Today, I’ll give you a little sneak peek into my class lecture from yesterday where I talked about the benefits of owning REITs.

So grab some coffee. Get comfortable. And welcome to my classroom for the day.

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School Is in Session

For those new to the topic, a REIT is a business structure that makes money by owning or financing property.

First legally created in the U.S. through the Real Estate Investment Trust Act of 1960, REITs do not pay any corporate income tax.

Instead, these entities must pay out at least 90% of their otherwise taxable income to investors in the form of dividends.

So essentially by owning a REIT, you can own real estate and benefit from the tenant who is paying rent… Without having to deal with the “terrible T’s”: toilet issues, tenant conflicts, and taxes.

As you can see from the chart below, the U.S. REIT universe spans across many different sectors.

Source: Brad Thomas

For almost any business segment you can think of, there’s a REIT that serves it.

Now, something a lot of people forget is that REITs are still in their early innings.

This universe is made up of over 200 REITs with a combined market capitalization of over $1 trillion.

And this figure represents just around 10% of all institutionally owned commercial real estate (in the U.S.), which means the opportunity to expand is huge.

So, investors looking to enter into the REIT universe today are setting themselves up to benefit from what I expect to be rocket ship-like growth.

Furthermore, by investing in REITs, investors are able to add exposure to real estate assets without all of the aforementioned hassles of physical real estate ownership.

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This is where we get into the “terrible T’s.”

First of all, REITs offer relatively cheap and diversified exposure to a sector.

It requires five, six, and even seven figures to make down payments on real estate investments. And I know most people don’t have that sort of cash laying around.

But shares of blue-chip REITs are much cheaper and provide exposure to hundreds, if not thousands, of high-quality physical structures.

That’s where the toilets come into play…

I don’t know about you, but I don’t want to be on the hook to maintain all those buildings. That’s a lot of plungers. Instead, I’d rather allow a REIT’s professional management team to take care of building maintenance issues.

Finding tenants for all those buildings would be a real struggle for an individual landlord as well. But the best REITs have decades of experience finding high-quality tenants and make sure that they’re collecting rent checks on time.

And lastly, by owning, REITs investors don’t have to worry about making property tax payments. The REITs do it for them. And, in many cases, the tenants of the buildings pay taxes and fees, meaning Uncle Sam doesn’t detract from shareholders’ wealth.

I should also note that REITs are liquid investments, which means that you can buy them and sell them daily, if you wanted to. (Though, I believe long-term ownership is usually the best course of action when it comes to building wealth.)

You can’t do that with physical buildings. It usually takes a lot of time to buy and sell property… And there can be hefty realtor fees involved.

Owning REITs alleviates all those issues while still providing high-yielding dividends. These equate to rent checks without any of the stress associated with being a physical landlord.

Stay tuned for more in-depth research, analysis, and commentary from my lecture at Penn State next week. And if you have any specific questions about the real estate sector, REITs, or what we can expect in 2023 overall, write to me and my team here.

Happy SWAN investing,

Brad Thomas
Editor, Intelligent Income Daily

P.S. If you’re interested in receiving our top REIT picks and research, check out the Intelligent Income Investor by clicking here.